Fixed Income ETFs – From the Sidelines

Really interesting to see all the posts on the behavior of Fixed Income ETFs in the current market. I have posted links to a number of them on my feed. A few detailed observations, in no particular order:

High Yield: It is surprising that price vs. NAV discounts have been stable in this space, given liquidity conditions, and when compared to asset classes such as Floating Rate Notes (FRNs) or Munis. Neither HYG nor JNK have seen discounts below about 1.5%, which is nothing, given that prices have fallen 18% in March. It is also interesting to note that while HYG has lost 8% of Aum in 20 days, JNK has lost over 25%. Bid-Asks of 2-5 cents look very reasonable in HY as well.

FRNs: Just like we saw in December of 2018, any reduction in liquidity hits this sector really hard. Seeing price v. NAV discounts in FLOT of 5-10% is eye-popping given that these are mostly 2-3 yr. bonds of big banks. I would agree with Reggie’s general assertion that NAVs are probably not adjusting quick enough here, for example NAV on VCSH is down 17% in 10 days, while FLOT NAV is down just 3%. 

Ultrashort: Similar to FRNs, we are seeing historic dislocations in the <1yr market for corps, as exhibited by unprecedented discounts in funds such as JPST and NEAR. Keep in mind, these are comprised entirely of (in theory) high-quality securities maturing in less than 1 year.

Primary vs. Secondary Flows: While trading volume in ETFs has obviously spiked, the ratio of create/redeem activity to secondary trading has not changed dramatically in Corp ETFs. For example, in January the average daily ratio of create/redeem activity vs. trading volume for VCIT was 43%. For the last five days, it was 39%.

Govies: In what is typically one of the most liquid and transparent markets on the planet, TLT has been trading at discounts of 2-5% over the last two weeks, as compared to an average of < 0.8% in January, clearly reflective of the horrible liquidity conditions in long treasuries (as compared to the smooth behavior of SHY, for example).

Interesting tidbits

  • The largest Bond ETF in the world (AGG; $66B), had redeem activity of 120% of total secondary trading yesterday.
  • Implied Yield spreads (to TSYs) have widened +243 bps on LQD and by +382 on JNK over the last 10 days.
  • BIL has nearly doubled in size during March, from $9.8B to $16.7B.
  • (I won’t even mention the rout going on in Muni space…)

Have a safe weekend!


Caveat: I’m not responsible if any of my numbers are slightly off, it is excel after all. But please let me know, so I can fix the formulas for next time.

data sources: Bloomberg,, and excel formulas (!)

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