“ETFs are being used not only by end investors looking for instruments with daily liquidity, but also by mutual funds seeking to mitigate the differences between the liquidity their investors expect versus the (poor) liquidity available in the underlying bonds,” Barclays added.

The potential problems ahead are associated with large redemptions in the ETFs or secondary markets. If enough people exit the funds, the ETF providers will have to swap shares for bond securities in the primary market. However, if there is not enough bond securities in the underlying market to meet redemptions, ETF investors may not be getting what they bargained for. [How ETFs Are Traded]

For more information on the fixed-income market, visit our bond ETFs category.

Max Chen contributed to this article.