The emergence of a new options market in the U.S. bond ETF segment has also opened up the market and created greater pricing efficiency. The listed options market for U.S. bond ETFs has almost tripled over the past three years, hitting an all time high of $45 billion in 2016.
However, despite the rapid growth of the ETF universe, the bond ETF market segment remains relatively underappreciated. The U.S. fixed income market is about 1.9 times the size of the equity market. However, bond ETF penetration is only one-ninth of the level of equity ETF penetration. U.S. equity ETFs make up 8.5% of total U.S. equities, but U.S. fixed-income ETFs only account for 0.9% of the total market, compared to 7.1% for U.S. fixed-income mutual funds.
The bond ETF market is only a shadow of the size of the other global markets. While global bond ETFs hold about $700 billion in AUM, global equity ETFs hold about $3.2 trillion, global mutual funds has $21. trillion and global fixed income has accumulated $96 trillion.
The disparity between bond ETF and stock ETF penetration suggests that there is a lot of room for further growth in the fixed-income ETF space, and the 15-year history for bond ETFs may be only signalling the beginning stages of growth.
For more information on the fixed-income market, visit our bond ETFs category.