Bond ETFs track a basket of fixed-income securities. Consequently, the ETFs are only as liquid as their underlying assets. In times of heightened market volatility, the bond ETFs may see a heavy redemptions, and without the necessary buyers in the underlying market, bid-ask spreads with rise and prices could fall even further. [How ETFs Are Traded]
“Constituents of the iBoxx $ Liquid Investment Grade index and those of LQD have exhibited considerably more liquidity than the 16,500 investment grade $ bonds covered by the Markit bond universe in the first quarter of this year,” according to Markit.
“The flood of new issuance seems to have affected long-term bond rates Thursday, says Rick Rieder, chief investment officer of fundamental fixed income at BlackRock. The yield curve steepened that day when it had flattened Wednesday after the Fed announcement,” adds Barron’s.
iShares iBoxx $ Investment Grade Corporate Bond ETF
Tom Lydon’s clients own shares of LQD.