Why bond ETFs have little to fear from a market collapse

ETFs provide secondary or incremental liquidity to the primary bond market and offer investors a transparent, continuous price even when the banks shut down.

Mark Wiedman believes the corporate bond marketplace is facing big problems when interest rates start to rise, however the global head of BlackRock Inc. iShares isn\’t overly concerned about the impact that may have on his firm\’s lineup of fixed-income exchange-traded funds.

To the contrary, Wiedman sees no reason to believe that ETFs is going to be any less resilient compared to what they were in the past periods of market stress despite growing concerns from others the liquidity underpinning corporate bond ETFs has already been lacking and can deteriorate further in a major downturn.

\”People say ETFs will blow up under the stress, but they only became more active in difficult periods previously,\” he explained in an interview this week. \”They actually performed better.\”

Wiedman said the chance of a liquidity crunch for corporate bonds is extremely real, particularly when the U.S. Fed starts to raise rates, perhaps as soon as later this year.

He said it\’s become much harder to trade bonds because the financial crisis because regulations make it increasingly expensive for banks to fulfill their market role as primary dealers intermediating with respect to buyers and sellers.