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A new toolkit for managing fixed income portfolios

 

toolkit The growing inefficiencies in the bond markets make shifting allocations increasingly difficult, forcing investors to look beyond over-the-counter (“OTC”) dealer model for their trading needs.

Bond ETFs are emerging as a portfolio management tool for institutions to navigate these trading challenges.

The liquidity of bond ETFs has grown substantially since they were introduced nearly 15 years ago. The maturation of this market has helped create a new source of on-exchange fixed income liquidity for investors beyond what is available in the OTC market.

In fact, the growth in trading volume of some of the largest bond ETFs appears to be part of a virtuous cycle driven by liquidity-challenged investors. As ETF trading volumes grow, they can accommodate larger trades, which precipitates even deeper level of liquidity.

BOND ETFs ARE HIGHLY LIQUID CREDIT EXPOSURE TOOLS1

A representative large $ Investment Grade Corporate Bond ETF AUM, volume and turnover A representative large $ High Yield Corporate Bond ETF AUM, volume
and turnover

1 Source: BlackRock, Bloomberg, as of 31 December 2016. Trading volume represents the cumulative annual trading volume of the ETF. Turnover rate represents annual trading volume as a percent of AUM. There can be no assurance that an active trading market for iShares of an ETF will develop or be maintained.