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With liquidity drying up in the cash market, fixed income exchange-traded funds (ETF) have emerged “as an alternative product that allows investors to navigate an increasingly difficult market environment,” according to a new report by market research firm TABB Group.
As evidence, TABB cites the fact that assets under management in corporate bond ETFs have grown more than ninefold since 2009. As the popularity of these instruments continues to rise, “U.S. broker-dealers are building out their fixed income ETF businesses to meet institutional investors’ demands in their search for more viable liquidity options,” the TABB report says.
The report, “Fixed Income ETFs: Bridging the Liquidity Divide,” examines the growth in the fixed income ETF market and “liquidity dynamics between ETFs and their underlying instruments and the ways in which broker dealers are meeting customers’ demands,” according to Tabb.
“In a world where managers are increasingly scrutinizing execution costs, credit exposure, in terms of inventories, and capital costs,” says Anthony Perrotta, a senior analyst at Tabb who co-authored the report, in a statement. “ETFs offer the market maker an efficient way to manage, transfer and hedge risk.”
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