Terra Firma: How ETFs Helped Stabilize a Tense Bond Market

The coronavirus outbreak is in the beginning a well being disaster, nevertheless it has additionally led to unprecedented volatility in monetary markets around the globe.

So what function did exchange-traded funds (ETFs) play within the turmoil?

Amidst the most important market turmoil in over a decade, ETFs have been a supply of stability. And this isn’t the primary time.

ETFs Survived the 2008 World Monetary Disaster, 2013’s Spill Rage, 2015’s Excessive-Yield Bond Sale, and Now Market pressures driven by the coronavirus.

Two factors about buying and selling ETFs throughout probably the most risky interval, from February 24 to March 27, 2020, are value remembering: first, many buyers turned to ETFs to regulate positions and handle dangers of their funding portfolios; And second, fixed-income ETFs have been an indispensable mechanism for worth discovery, reflecting costs in actual time when bond market liquidity was challenged.

Report buying and selling volumes within the face of elevated volatility

In hectic market situations up to now, ETF buying and selling exercise tended to extend when market volatility rose. This was achieved through the interval between 24 February and 27 March.

Some knowledge from that interval are value highlighting:1

  • US-listed ETFs traded roughly $6.4 trillion. Compared, the buying and selling quantity of particular person shares was practically $11 trillion. Subsequently, ETFs accounted for 37% of all inventory buying and selling. In 2019, they accounted for 27%.
  • US-listed ETFs traded practically $256 billion per day on common, practically triple the typical every day buying and selling quantity for 2019.
  • In the course of the week of March 9, US ETF buying and selling volumes rose to a report $1.4 trillion.

Buyers turned to ETFs through the present market stress for good purpose: They have been highly effective and efficient instruments for rebalancing holdings, hedging portfolios, and managing threat.


ETFs as a proportion of inventory buying and selling towards the VIX

Supply: Bloomberg, BlackRock, as of March 30, 2020

Mounted-income ETFs replicate real-time market costs.

ETF liquidity was essential to the bond markets final month. Whereas particular person bonds commerce in an opaque over-the-counter (OTC) market, fixed-income ETFs commerce on an alternate, like shares. This ease of entry signifies that fixed-income ETF shares are usually traded greater than underlying bonds, even in quiet markets.

For instance, lower than 1% of the greater than 21,000 publicly registered company bonds commerce every day on the OTC market.2 On March 12, a day of intense market turmoil, iShares® iBoxx USD ETF (LQD) traded practically 90,000 occasions on the alternate, whereas its 5 largest holdings traded 37 occasions every on common. .3

Due to this liquidity, fixed-income ETF costs embrace extra real-time info than even probably the most traded portfolio bonds, displaying the place an actionable worth is situated for the whole portfolio. This reveals the energy of such ETFs Price discovery toolsParticularly when the markets are transferring quick.

This dynamic was demonstrated when bond market liquidity was below strain through the week of March ninth. Mounted earnings ETFs commerce at costs under the web asset worth (NAV). nav is a file appreciation For the honest worth of the underlying property, based mostly on precise portfolio bond offers, estimates derived from bond offers in the identical issuer or sector, or different market measures. The worth of the ETF reveals what the buyers are In actuality able to pay.

In different phrases, these reductions have been “main indicators” for the costs of the underlying bonds.


LQD charge towards Prime Holdings, from February 19, 2020 to March 23, 2020

Chart showing LQD price against top holdings, from February 19, 2020 to March 23, 2020
title Weight in LQD
GE Capital Worldwide Funding (GE) 0.35%
Anheuser-Busch Firms LLC (ABIBB) 0.31%
CVS Well being Corp (CVS) 0.31%
Verizon Communications Company (VZ) 0.22%
Goldman Sachs Group Inc (GS) 0.21%

As of March 23, 2020. Holdings are topic to vary. For the newest fund holdings, go to iShares.com. Data relating to securities aside from the iShares Fund is offered for illustrative functions solely and shouldn’t be thought-about as a proposal to promote or a solicitation of a proposal to purchase shares in any safety aside from the iShares funds described on this part.


A typical criticism of ETFs, fixed-income ETFs specifically, is that they haven’t been examined in a hectic market atmosphere. However within the current hectic market atmosphere, fixed-income ETFs have offered readability in an opaque phase of the market. In troublesome occasions of bond market liquidity, buyers can achieve (and promote) publicity by buying and selling ETFs.

Within the worst volatility for the reason that international monetary disaster, buyers have seemed to ETFs to shift threat and allocate capital. In all environments, ETFs carried out as designed and offered entry, liquidity, and transparency to the market.

ETFs have been examined again and again. And every time they cross the check.


1. Bloomberg, BlackRock for the interval February 24, 2020, to March 27, 2020.

2. Citigroup, “The Subsequent Revolution in Credit score Portfolio Buying and selling” (November 2019)

3. BlackRock, TRACE (As of March 12, 2020)

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© 2020 BlackRock, Inc. all rights are save.

All posts are the opinion of the creator. As such, it shouldn’t be construed as funding recommendation, nor do the opinions expressed essentially replicate the views of the CFA Institute or the creator’s employer.

Picture credit score: © Getty Photographs / Julian Dewert

Barbara Novick

Barbara G. Novick is Vice Chairman and Co-Founding father of BlackRock. In her present function, Novick oversees the agency’s efforts globally for public coverage and funding oversight. From the corporate’s founding in 1988 to 2008, Novick chaired the World Shopper Group and oversaw international enterprise growth, advertising and marketing and consumer service throughout equities, fastened earnings, liquidity, different funding and actual property merchandise for institutional and retail buyers and their brokers. all around the world. Novick has authored quite a few articles on asset administration and public coverage points.

Samantha Merwin, CFA

Samantha Merwin, Chartered Monetary Analyst (CFA), is the Chief Market Advocate for ETF & Index Investing (EII) Markets & Investments at BlackRock. On this function, she works intently with BlackRock’s international public coverage group in addressing a broad vary of indexing and ETF-related points with policymakers around the globe. It additionally advances the present dialogue about how indexing and ETFs have an effect on monetary markets with purchasers and market members. Merwin is a member of the Bryant College Wall Road Council and the Bryant College Enterprise College Dean’s Council. She can also be CFA licensed.

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