A lack of liquidity, perceived or real, could be an issue in the futures for Build America Bond ETFs. Liquidity concerns have crept into the bond ETF market in the past. Earlier this year, selling pressure on some high-yield bond ETFs prompted concerns about the liquidity of those funds, though those concerns were later allayed as it was proven those ETFs functioned as expected during a tumultuous period for junk bonds. [Digging Deeper Into Bond ETF Liquidity]
Importantly, as Barron’s notes, issuers of Build America Bond ETFs could make some changes to cope with the diminishing supply of these bonds. PowerShares could add taxable municipal bonds to BAB and State Street has indicated it could make changes to BABS, Barron’s reported. Issuers could also convert Build America Bond ETFs to closed-end funds or make them hybrid funds so other securities can be included. [Changes in Store for Build America Bond ETFs]
Pimco Build America Bond ETF
ETF Trends editorial team contributed to this post.