Bond ETFs Are Changing the Way Investors Interact with Debt Markets

Large money managers and institutional investors are relying more on ETFs to quickly and easily gain exposure to the fixed-income markets instead of directly dealing with individual debt securities.

Among the novelties that ETFs have helped bring to the financial markets, the so-called credit portfolio trade where investment banks and asset managers quickly exchange multi-million dollar, multi-faceted blocks of corporate bonds has gained in popularity as a way to execute big debt orders with ETFs, the Financial Times reports.

For example, in midday October 25, 2017, AllianceBernstein executed a $500 million trade in nearly 50 different corporate bonds at the same time. Instead of a bank, which now act more like facilitators than absorbers of big trades, AllianceBernstein was able to efficiently and quickly execute the trade through the portfolio trades.

“We are using the ETF ecosystem to move blocks of risk around,” Jim Switzer, head of credit trading at AllianceBernstein, told the Financial Times. “We’re not playing the role of banks. But when we are also liquidity providers in a dislocated market, we get better execution and generate alpha.”

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