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Credit ETFs Cause a Liquidity Problem and Then Sell the Solution

Jan. 19, 2021, 2:23 PM

Wall Street’s long-running debate over whether corporate bond ETFs are either a force for good or bad might be missing the point. Both sides are likely right.

As U.S. exchange-traded credit funds hit about $270 billion in assets, Barclays Plc research shows the passive boom is coming at the expense of liquidity in the underlying market overall -- increasing transaction costs along the way.

But at the same time, ETFs provide a solution to the very problem they’re helping to cause by making trading easier and cheaper in the specific securities they track, particularly in the world of high yield. ...

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