ETF managers are doing some damage control after media reports the past week questioned how bond funds performed during the recent sell-off.

“Nothing we have seen is out of the ordinary,” said Daniel Gamba, head of Americas institutional iShares business at BlackRock, in an report Friday. “Premiums and discounts for our products are really reflecting the sentiment of the market.”

ETF providers are trying to get the word out that recent discounts to net asset value (NAV) in bond funds reflect the fact that some fixed-income markets aren’t as liquid as stocks.

As ETFs trade throughout the day, “buyers, sellers and market makers are influencing the ETF’s price based on what they believe the underlying holdings could sell for on the open bond market,” reports Jackie Noblett for Ignites.

In times of market stress or volatility, when the liquidity of the underlying bonds may decrease, “it might be the case that the ETF does a better time of real-time price discovery than the underlying holdings do,” said Jim Rowley, senior investment analyst at Vanguard Investment Strategy Group, in the article. [ETFs: People Fear What They Don’t Understand]

“The fact that ETFs offer liquid access and the ability to price in new information on a real-time basis, even when the underlying bonds are trading thinly or not at all, is one of the reasons we’re seeing such increased adoption of fixed income ETFs,” says Dodd Kittsley, head of global exchange traded product market trends research for BlackRock.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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