Nevertheless, an ETF’s true liquidity is limited to the activity of its underlying market. In this case, fixed-income observers are concerned that the low liquidity in the junk debt market could cause problems in junk ETFs if a large sell-off were to occur.
“To the extent that there’s selling of high-yield ETFs that results in redemptions, that could put pressure on the underlying market,” Grossman added. “We didn’t see it in the most recent period [of market stress]but that’s something that remains a concern.”
HYG and JNK increased 1.3% over the past week. Both ETFs were showing above average trading volumes Monday.
For more information on speculative-grade debt, visit our junk bonds category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own shares of HYG, JNK.