How Volatility and Performance Accelerated Institutional Adoption

Covid-19大流行病的发作引发了固定收入市场的异常中断，并导致了固定收益ETF的活动中的上涨。在过去十年中，在多个市场压力期间，交流交易的透明度，访问，流动性和效率已经证明是对固定收入投资者有价值的。尽管有实体的轨道记录，但某些市场参与者可以通过前所未有的市场震动来测试任何可能发生的问题，例如由大流行引发的前所未有的市场冲击测试。关于ETF是否能够承受持续销售的压力，以及它们是否可能加剧潜在市场的价格下降的问题。

When the shock came, the results were clear: Fixed income ETFs not only held up under stress, but they became important tools for market participants. Institutions turned to the most liquid fixed income ETFs as sources of real-time price discovery and cost-efficient execution when transparent quotations and liquidity had sharply deteriorated in individual bonds.

Volatility followed by surge in fixed income ETF trading

Investors have tended to increase their use of fixed income ETFs during times of uncertainty because they have shown to be efficient and effective tools for rebalancing holdings, hedging portfolios, and managing risk. In fact, during the immediate COVID-19 financial crisis trading in U.S. fixed income ETFs surged to $1.3 trillion in the first quarter of 2020 – half of the $2.6 trillion for all of 2019.

During volatility jumps, investors want to weigh all their options and have maximum flexibility. Practically speaking, that means they need liquidity, and U.S. corporate fixed income ETFs demonstrated they could provide incremental liquidity to the market as trading rose at a faster rate than trading in individual bonds as credit risk spiked.

成交量在所有在美国上市的高收益固定的income ETFs averaged as much as $7.8 billion per day in March 2020 and represented as much as 29% of individual high yield bond trading in the over-the-counter (OTC) market; for comparison, high yield fixed income ETFs averaged around 11% of OTC high yield trading in 2019. The trend was similar in U.S. investment grade corporate bond trading, where fixed income ETFs in March represented as much as 24% of individual investment grade bond trading in the OTC market, compared with 10% in 2019.

In both high yield and investment grade, as markets became more volatile, investors turned to fixed income ETFs.

Fixed income ETFs indicators of real-time, actionable prices

许多固定收益etf交易数十亿美元and tens of thousands of times per day on exchange during the peak of 2020’s early-year market volatility. This frequency of trading is orders of magnitude more often than the most heavily traded corporate bonds.

On March 12, one of the worst days for equity markets in modern history and a day during which credit markets sold off sharply, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) traded almost 90,000 times on exchange compared with just 37 times on average for its largest five bond holdings.

From February through April, the iShares iBoxx $ High Yield Corporate Bond ETF’s (HYG) and LQD’s average daily dollar trading volume was 25 times and 7.5 times more per day, respectively, than their five largest bond holdings.

High trading volumes support the notion that fixed income ETFs provided actionable prices for investors at a time when the underlying bond market was challenged. The on-exchange market prices for fixed income ETFs reflected both absolute and relative values and helped enable investors to understand rapidly changing market conditions.

由于他们提供实时定价和贸易，因此固定收益ETF是估值，投资组合建设和机构投资者风险管理的核心。亚博赞助欧冠特别是，固定收益ETF已成为回报，波动和市场情绪的基准参考。

More efficient to trade, too

市场波动创造了定价不确定性，并且通常转化为所有证券的更广泛的出价/询问差价。转向固定收益ETF的投资者在2020年的挥发性期间，不仅存在实时，可操作的定价，而且还比各个债券中的一般可用的交易成本降低。

While bid/ask spreads for fixed income ETFs did increase somewhat during this period of market volatility, they remained lower for iShares flagship fixed income ETFs than for individual bonds and bond portfolios across sectors; from the emerging markets to U.S. Treasuries, bid/ask spreads of the most liquid iShares fixed income ETFs remained lower than corresponding underlying bond portfolios (Figure 4).

During the worst of the market turmoil in February and March 2020, fixed income ETFs became central to the investment decision-making process for a growing number of institutional investors. Given the lack of liquidity and price discovery in the underlying markets, portfolio managers and traders used fixed income ETFs to understand rapidly changing market conditions; help price individual bonds and portfolios; determine absolute and relative value opportunities that underpin allocation decisions; implement decisions rapidly and efficiently; and hedge unwanted risk. Here are two examples that highlight why and how institutional investors pivoted to fixed income ETFs during the extraordinary market volatility, and how fixed income ETFs are like a technology that can potentially offer flexibility, lower trading costs and the convenience of market access.

Use case #1: Liquidity management

Buyer:An asset manager elects to use high yield fixed income ETFs for the first time.

Background:Asset managers need liquidity to manage fund subscriptions and redemptions while remaining invested to avoid cash “drag” that can lead to underperformance relative to their benchmark. The certainty of execution matters most in assets such as high yield bonds, where transacting in individual securities can be time-consuming and expensive.

Challenge:During March 2020, extreme volatility diminished liquidity in the high yield market. Fund portfolio managers struggled to sell bonds to raise cash to meet redemption requests. At the same time, as market sentiment turned positive, it was hard to buy enough high yield bonds to keep pace with the rally.

Traditional approach:Traditionally, high yield bond fund portfolio managers created liquidity tiers, or “sleeves,” using the most liquid securities within a given asset class and cash-like instruments including money market funds.

Fixed income ETF approach:需要在市场波动的背景下采取快速行动，一位大型资产经理购买了2.5亿美元的HYG。这是经理第一次使用固定的收入ETF，并为流动性，速度和效率做出了。通过在流动性套筒中使用Hyg而不是高收益债券，该资产经理正在寻求获得产量和市场β，同时保持持续下载清算的能力。

Use case #2: Strategic Asset Allocation

Buyer:保险公司将投资级公司固定收益ETF在他们的投资组合中。

Background:Life insurers deal with significant premium cash flows every day. Their businesses depend on quickly and efficiently investing such cash flows to meet their liability obligations.

Challenge:Finding individual investment grade bonds was difficult because liquidity and new issuance dried up in February and March 2020. During this time, bid/ask spreads for investment grade bonds widened from about 25bps to over 100bps, in price terms, while LQD’s bid/ask spread stayed below 2bps over the same period.⁷

Traditional approach:传统上，保险公司严重依赖于个别投资级债券，以责任匹配，往往通过投资新发行的债券，这往往是高度的液体。

Fixed income ETF approach:One major U.S. insurer was faced with the prospect of holding too much cash and earning too little income. To help remedy this mismatch, the insurer invested in the highly liquid LQD.

Use case #3: Tactical Asset Allocation

Buyer:一个大型的公共养老金计划有针对性的新兴标记et fixed income ETFs in rapidly changing conditions.

Background:Public pensions must maintain diversified portfolios that can meet the income obligations of their beneficiaries. Pension managers must rapidly and efficiently adjust investment exposures in changing market conditions.

Challenge:Price dislocations in March 2020 across the fixed income markets presented opportunities to many investors in areas including emerging markets.

Traditional approach:Pension funds purchased large, liquid individual bonds or employed derivative products such as CDX in order to build desired exposure.

Fixed income ETF approach:该计划试图重新平衡其投资组合，包括高产的寻求资产，包括新兴市场债务，希望利用广泛的抛售。但是，鉴于这些证券的出价/询问差价剧烈扩展，它昂贵且耗时地建立这个立场。基于物理键和CDX的基础上的脱位也使衍生物溶液也不太适得。

In this use case, the plan opted to express its tactical market view using the iShares JP Morgan USD Emerging Markets Bond ETF (EMB), which has traded nearly $600 million on an average day.⁸By using EMB, the plan could quickly access the desired asset class while limiting transaction costs to single-digit bid/ask spreads versus several percentage points for comparable bonds. Liquidity was also a consideration as the ETF would allow them to efficiently increase or decrease the position as necessary.

Use case #4: Derivative replacement

Buyer:A large asset manager looks beyond CDX to ETFs in order to express a view on the corporate credit market

Background:Asset managers have many choices for adding or hedging credit risk in portfolios. Investment grade and high yield fund managers can choose among credit default index swaps (CDX), credit index futures, credit index total return swaps, credit ETFs or individual bonds.

Challenge:The relative merits of using one investment versus another are driven by market dynamics. The liquidity provided by CDX allows investors to rapidly add and reduce risk at scale. However, the basis risk in CDX can be substantial and correlations with cash bond portfolios can deteriorate sharply during times of stress. Credit index total return swaps (such as iBoxx TRS) typically are an improvement in basis risk and correlation, but they do not yet enjoy the same liquidity and transaction cost advantages of CDX or credit ETFs. Corporate bond index futures (e.g., CBOE HYG index futures) are still in a nascent stage.

Fixed income ETF approach:In March, the asset manager that typically used CDX to access investment grade and high yield credit exposure found that the performance differential between the synthetic exposure and individual bonds reached an untenable extreme. This manager had not previously used fixed income ETFs, but had taken note of their deep liquidity and value relative to CDX in the context of the market dislocation. Accordingly, this manager purchased $1.2 billion in LQD and $500 million of HYG to increase exposure to credit amid severe spread widening.

An eruption of market volatility in early 2020 touched nearly every corner of the fixed income markets. For institutions, the episode highlighted that the OTC bond market remains relatively opaque and fragmented, despite improvements made in recent years. By contrast, the largest and most heavily traded fixed income ETFs illustrated the important role that they play in both normal and stressed market conditions by providing invaluable price discovery and liquidity. These attributes helped institutional investors understand and navigate rapidly changing market conditions at a time when it was needed most. It also showed that the most heavily traded fixed income ETFs are essential to the functioning of healthy fixed income markets, where buyers and sellers can exchange risk efficiently.

For pensions and insurance companies, fixed income ETFs provided a means to reduce complexity and streamline portfolio construction and risk-management practices. For asset managers, fixed income ETFs served as rapid and efficient tactical allocation tools and as liquidity sleeves to minimize trading frictions and reduce the potential for cash drag.

Recent trends underscore BlackRock’s view that institutional investors will propel future fixed income ETF growth, which remains just a fraction of total global fixed income assets. The firm projects that global fixed income ETF assets will double, to $2 trillion, by 2024, aided by the important role that fixed income ETFs are playing in the modernization of fixed income market structure, the evolution of portfolio construction and constant product innovation.⁹

Indeed, the pace of growth could be faster than we expect. In 2019, when BlackRock first made the projection mentioned, fixed income ETF assets had just crossed $1 trillion. Since then, fixed income ETF assets have grown by more than 30% – nearly all of which was organic growth. As more asset managers and asset owners embrace fixed income ETFs as an efficient, transparent and convenient way to access the bond market – especially in times of volatility – the prospects for growth will only look brighter.

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¹_{BlackRock, Bloomberg (as of May 31, 2020).}

²_{sifma痕迹;黑石;彭博;2020年3月20日，美国高产债券ETF的20天平均水平为7.8亿美元，而个别债券为274亿美元。}

³_{sifma痕迹;黑石;彭博;2020年3月25日，美国投资级债券ETF的20日平均水平为69亿美元，而个别债券为288亿美元。}

⁴_{BlackRock, Bloomberg (as of May 31, 2020).}

⁵_{BlackRock, FINRA TRACE (as of May 31, 2020).}

⁶_{Bloomberg, BlackRock (as of May 31, 2020).}

⁷_{彭博（截至5月31日）。}

⁸_{彭博（截至5月31日）。我传播代表了伯爵相对于潜在的基准，USD互换的产量扩散。}

⁹_{贝莱德,“准备增长”2019;全球债券ETF assets as of June 30, 2020. There is no guarantee that such forecast will come to pass.}

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