Fixed Income ETF Liquidity: The Nonstory

Fixed Income ETF Liquidity: The Nonstory

Bond ETF trading was smooth as silk after the surprise victory by Trump.

Reviewed by: Patrick Luby
Edited by: Patrick Luby

Amidst the turmoil of the post-election bond market—with rates rising, trade volumes surging and reduced dealer support of the over-the-counter bond market, how did the market for fixed-income ETFs do?

One of the most interesting takeaways from the data is that there is no story here. In spite of all the concerns about the lack of liquidity in the fixed-income markets, the market for fixed-income ETFs appears to have functioned smoothly throughout the recent volatility.

Using a few of the largest taxable bond ETFs and municipal bond ETFs as proxies for the universe of fixed-income ETFs shows that trading volumes rose across the board—in the over-the-counter market for bonds as well as in the listed market for fixed-income ETFs. Of particular interest was the Friday after the election, which was Veterans Day—one of the few market holidays when stocks are open but bonds are closed. Note that the trade volumes for the ETFs that day were higher than the pre-election averages.


Daily Average Trading Volumes

For a larger view, please click on the image above.



While fixed-income ETFs remain subject to all of the usual sources of bond market risk, including credit and interest rate (or duration) risk, as can be seen from the activity on Veterans Day, access to exchange-traded liquidity is a major benefit of supplementing a bond portfolio with fixed-income ETFs.

Investors looking for guidance on how to select a fixed-income ETF may want to start by reading this article about muni ETFs that has some insights relevant to other fixed-income ETFs. The Fixed Income channel also has helpful resources.

Net Flows
11/8 thru 12/27
AGGiShares Core U.S. Aggregate Bond ETF$41.30$452.90
LQDiShares iBoxx $ Investment Grade Corporate Bond ETF$26.80-$2,590.30
TOTLSPDR DoubleLine Total Return Tactical ETF$3.00$56.00
HYGiShares iBoxx $ High Yield Corporate Bond ETF$18.60$2,802.30
JNKSPDR Bloomberg Barclays High Yield Bond ETF$11.90$639.00
MUBiShares National Muni Bond ETF$7.80$318.00
HYDVanEck Vectors High-Yield Municipal Index ETF$1.70-$421.00

ETFs highlighted in the article. Data from FactSet Research Systems via 


Patrick Luby is a municipal bond market and portfolio strategy specialist and the author of At the time of writing, the author held none of the securities referenced. This is not a recommendation to buy, sell or hold any of the securities or strategies mentioned. The author does not provide investment, tax, legal or accounting advice. Investors should consult with their own advisor and fully understand their own situation when considering changes to their strategy, tactics or individual investments. Information is based on sources believed to be reliable, but its accuracy is not guaranteed. Additional information is available upon request.


Patrick Luby is the municipal strategist with CreditSights Wealth and has decades of experience in the municipal bond market.