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What happens to bond ETFs in stressed markets?

Wavebreakmedia Ltd / Thinkstock
Wavebreakmedia Ltd / Thinkstock

After going over some of the basics of exchange traded funds (ETFs) and specifically, bond ETFs, I am going to dive a little deeper today and look at how bond ETFs fare when the markets are stressed. Before I start, here is a quick recap: An ETF is a fund that trades on an exchange like a stock. A bond ETF bundles a portfolio of bonds into a single, simple package. Shares of that "package" are then traded on a stock exchange. Because a bond ETF is simply made up of a collection of bonds, its market price will typically fluctuate along with the collective price of its underlying securities. So, when buyers push up the prices of bonds, the prices of bond ETFs should rise. And when sellers push down the prices of bonds, the prices of bond ETFs should fall as well.

When supply and demand are out of whack

Too many for sale signs

Managing liquidity

an additional source of liquidity Matt Tucker , CFA, is the iShares Head of Fixed Income Strategy and a regular contributor to The Blog .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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