MODERNISATION OF THE BOND MARKET

Discover how fixed income ETFs are changing the bond market.

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WHAT IS GOING ON IN THE EUROPEAN BOND MARKET?

  • Growing adoption of fixed income ETFs and other index- and portfolio-based products, coupled with dramatic improvements in technology, are continuing to revolutionise the way investors access European corporate bond markets.
  • As we brace for a new regime of greater macro-led market volatility, the adoption of fixed income ETFs continues to grow in 2023 as investors use them for access, liquidity and managing risks in their bond portfolios.
  • We believe ETFs will continue to play an integral role for investors looking to access and navigate today’s bond markets.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

CHANGE IS IN THE AIR FOR BOND MARKETS

Bond markets have evolved significantly since the global financial crisis of 2008, largely due to the shift in banks’ trading models and an increasing reliance on electronic platforms.

The Covid-19 selloff in March 2020 was a key catalyst to accelerated adoption, particularly by institutional investors, as ETFs were able to provide price transparency, immediacy of execution, and tight tracking during uncertain times.

Against this backdrop, the use of fixed income index instruments, including ETFs, has significantly increased due to the benefits they bring, including improved transparency, liquidity and efficiency.

Video 01:06

FIXED INCOME ETF LIQUIDITY: A NEW REGIME

Explore how fixed income ETFs are continuing to attract investors, as we brace for a new regime of greater market volatility.

FOR PROFESSIONAL CLIENTS, QUALIFIED CLIENTS AND QUALIFIED INVESTORS ONLY

 

Capital at risk

 

The role of fixed Income ETFs in a new market regime

 

Natacha Blackman – iShares Fixed Income Product Strategist

 

As we brace for a new regime of greater macro-led market volatility, the adoption of fixed income ETFs continues to grow with investors using them for access, liquidity and managing risks in their bond portfolios. The liquidity benefits of fixed income ETFs, particularly during volatile and illiquid markets, have been felt by investors during financial turmoil. ETFs’ trading volumes have surged as underlying bond markets have seen liquidity deteriorate.  ETF trading surged in 2022 despite underlying liquidity challenge chart shown. Even with new bond supply picking up, higher market volatility combined with bouts of illiquidity are likely to be permanent features of this new macro regime, increasing the importance of flexibility in investor portfolios. That’s why at iShares, we believe fixed income ETFs will play an even greater role in the way investors access fixed income markets in the future. Thank you for watching and feel free to navigate our website for more information. 

 

This document is marketing material: Before investing please read the Prospectus and the PRIIPs KID available on www.ishares.com/it, which contain a summary of investors’ rights.

 

Risk Warnings

 

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

 

Important Information

This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) only and should not be relied upon by any other persons.

 

In the UK and Non-European Economic Area (EEA) countries: this is Issued by BlackRock Advisors (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL, Tel: +44 (0)20 7743 3000. Registered in England and Wales No. 00796793. For your protection, calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock. In the European Economic Area (EEA): this is Issued by BlackRock (Netherlands) B.V. is authorised and regulated by the Netherlands Authority for the Financial Markets. Registered office Amstelplein 1, 1096 HA, Amsterdam, Tel: 020 – 549 5200, Tel: 31-20-549-5200. Trade Register No. 17068311 For your protection telephone calls are usually recorded. For information on investor rights and how to raise complaints please go to https://www.blackrock.com/corporate/compliance/investor-right available in Italian. Dubai DIFC issuing: Blackrock Advisors (UK) Limited -Dubai Branch is a DIFC Foreign Recognised Company registered with the DIFC Registrar of Companies (DIFC Registered Number 546), with its office at Unit L15 - 01A, ICD Brookfield Place, Dubai International Financial Centre, PO Box 506661, Dubai, UAE, and is regulated by the DFSA to engage in the regulated activities of ‘Advising on Financial Products’ and ‘Arranging Deals in Investments’ in or from the DIFC, both of which are limited to units in a collective investment fund (DFSA Reference Number F000738). For investors in Israel: BlackRock Investment Management (UK) Limited is not licenced under Israel's Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 5755-1995 (the “Advice Law”), nor does it carry insurance thereunder. For investors in South Africa: Please be advised that BlackRock Investment Management (UK) Limited is an authorised Financial Services provider with the South African Financial Services Conduct Authority, FSP No. 43288. For Investors in Switzerland: For Qualified Investors only. This document is marketing material. This document shall be exclusively made available to, and directed at, qualified investors as defined in Article 10 (3) of the CISA of 23 June 2006, as amended, at the exclusion of qualified investors with an opting-out pursuant to Art. 5 (1) of the Swiss Federal Act on Financial Services ("FinSA"). For information on art. 8 / 9 Financial Services Act (FinSA) and on your client segmentation under art. 4 FinSA, please see the following website: www.blackrock.com/finsa. © 2023 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, and iSHARES are trademarks

LIQUIDITY BENEFITS OF FIXED INCOME ETFs

The liquidity benefits of fixed income ETFs are felt by investors, particularly during volatile and illiquid markets. In 2022, trading volumes surged to all-time records, as liquidity in the underlying market sharply receded. As fixed income ETF assets continue to grow (now topping $1.8 trillion globally)1, the overall trading ecosystem supporting them has also developed quickly. 

Risk: Two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to repay the principal and make interest payments.

1 Source: BlackRock and Bloomberg, as of February 28, 2023.

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ETF BOND MARKET MODERNISATION CONTINUES

Vasiliki Pachatouridi, Natacha Blackman | Nov 10, 2022

As the bond market continues to modernise, learn about the evolution of ETF trading, the development of the ETF ecosystem and the advances in ETF primary market processes.

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GET YOUR FIX OF FIXED INCOME

Natacha Blackman, Philip de Weijs | Jan 1, 2023

Download our monthly report on flows and liquidity trends in fixed income UCITS ETFs.

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