We have previously written about the risks building form the rising popularity of bond ETFs.
This article argues the opposite – more ETFs = more trading in bonds = liquidity.
We take issue with these arguments. An inspection of two bond etf prices shows you that they have mostly marched upwards (e.g. LQD, VCIT).
As ETFs go up they create more units and are willing buyers in bond markets. This of course creates liquidity.
The main issue will be on the downside – if something goes wrong, ETFs, en masse as they follow pre-set rules, will sell and there won’t be anyone on the other side.
