In light of rising concerns about bond exchange traded funds, large fund providers are coming together to make fixed-income products easier to use by providing standardized data points.
Providers including BlackRock (NYSE: BLK), State Street (NYSE: STT), Fidelity Investments and Pacific Investment Management Co. are working with Bloomberg on a new metric for over 100 funds in the U.S. and Europe, or a combined 40% of global fixed-income exchange traded product assets, the Wall Street Journal Reports.
“It’s creating a common language for quoting in terms of yield and spread,” Stephen Laipply, a product strategist for BlackRock’s model-based fixed income portfolio management group, told the WSJ.
Other financial firms are also trying to improve bond ETF trading. For instance, MarketAxess Holdings (NasdaqGS: MKTX), an electronic corporate bond trading platform, is crafting a way to make it easier for market makers to find and trade bonds used in a products’ underlying basket of securities.
Bond ETFs have come under greater scrutiny as we move toward the first interest rate hike in almost a decade. Some observers believe that higher rates could trigger huge selling pressure in bond ETFs, notably in speculative-grade investments, which could cause market makers to see pricing discrepancies in the notoriously illiquid underlying debt securities markets.