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XBB crashing is not same as a bond crash. XBB is a mainly retail product and subject to investor sentiment. I doubt that the NAV of XBBs underlying bonds dropped as much as XBB did. My bond portfolio didn't drop much. Just a little to reflect increased perceived risk of corporate bonds. There was no 'crash'.
 

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XBB crashing is not same as a bond crash. XBB is a mainly retail product and subject to investor sentiment. I doubt that the NAV of XBBs underlying bonds dropped as much as XBB did. My bond portfolio didn't drop much. Just a little to reflect increased perceived risk of corporate bonds. There was no 'crash'.
Did you try sell any of your corporate bonds in March?
Many (all?) brokerages we’re refusing to offer bids for bonds. The prices reported in your accounts may have been stale — and, frankly, not applicable because you could only sell to your brokerage’s bond desk. And they weren’t buying, at any price.

This is an important advantage XBB (and other funds) displayed. The prices swooned —perhaps more than was justified — but they remained liquid. You could sell if you needed to.
 

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Corporate bonds truly did crash. XBB just made it visible. When agent99 said their bond portfolio didn't drop much, I think the brokerage probably did not reflect accurate prices on their screen. agent99 would not have been able to sell any of their corporate bonds, if they tried.

In other words, the prices on the screen were incorrect and irrelevant. agent99 does not know how much their portfolio dropped during that incident.

At the same time, nobody forced me to sell XBB, and I didn't. I could have simply closed my eyes and not looked at the XBB trading price at all -- the same as the broker showing me a useless quote.

There are advantages to both methods. Having total liquidity on XBB and being able to buy & sell at any time is both a gift and a curse. The "curse" is that you see bond pricing and when the market goes haywire (like March) you see the direct impact on your holding.
 

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Did you try sell any of your corporate bonds in March?
Many (all?) brokerages we’re refusing to offer bids for bonds.
That leads me to a few questions:
  • How/where did you find out Many (all?) brokerages we’re refusing to offer bids for bonds.? Did you try and sell a bond yourself? ( I only read about that possibility here on CMF!)
  • How would a bond fund like XBB determine their NAV if there was no market price for bonds at such a time?
  • Re liquidity. A bond fund can crash (as they did). Then more retail owners bail out, exacerbating the situation. Liquid yes, but why sell after prices swooned?
I don't buy bonds with a view to selling them. They are normally held to maturity. So, no, I did not try and sell. I did buy about 6 or 7 bonds in early April. I presume either BMOIL themselves or another BMOIL investor did sell. Buy/Sell prices were quoted daily. Bonds were bought and sold.
 

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  • How/where did you find out Many (all?) brokerages we’re refusing to offer bids for bonds.? Did you try and sell a bond yourself? ( I only read about that possibility here on CMF!)
  • How would a bond fund like XBB determine their NAV if there was no market price for bonds at such a time?
  • Re liquidity. A bond fund can crash (as they did). Then more retail owners bail out, exacerbating the situation. Liquid yes, but why sell after prices swooned.
I don’t own any bonds. I used to own strips, but migrated to GICs because they offered a higher rate, assuming they are held till maturity.
To lengthen duration and improve liquidity I added chunks of XBB and XRB.

I am relying on reports on CMF and FWF about individual bonds going no bid during the worst of the crash. The thread linked below references TDDI, iTrade and Qtrade.
Corporate bond inventory and quotes dried up? TD WebBroker only or everyone? - Financial Wisdom Forum

As for how XBB determined NAV, I surmise they used some stale prices and some real bids (or transactions) at panic prices. Hence the dramatic changes in NAV and price in March.

I agree that it was unwise to sell at those distressed prices. But if you needed to sell —because of, say, a margin call —you could sell XBB.
You very likely could not have sold a Bombardier or Ford Credit bond at any price.
 

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According to a proprietary Bay Street note I saw, XBB and the other bond ETFs calculated their NAVs using stale prices or insufficient data (no pricing available). The NAVs they published were therefore no good.

That also means that what we thought was a sharp discount to NAV at the time, really was not a discount to NAV. Instead, the bond ETF prices were correctly showing fair value.

The ETF trading price was a better reflection of true bond prices than the NAV was. This persisted for a while when the bond market was dysfunctional and broken. That's actually a huge success for ZAG, XBB, etc. They continued to offer bond liquidity through that period.

I hold XBB and nobody forced me to sell. In fact, I even got a DRIP reinvestment during the distressed pricing, boosting my returns.

After going through all that, I see absolutely no problem with the bond ETFs. They did their jobs and performed as expected. The corporate bond market imploded, and they simply reflected that pricing.
 

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You very likely could not have sold a Bombardier or Ford Credit bond at any price.
Have to admit that I do own some Ford Credit. Not a good choice. Should have learned back in day when we just squeaked through to maturity with GMAC and Ford Thunderbirds. Hopefully the Ford I still own will hang in there.
 

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The ETF trading price was a better reflection of true bond prices than the NAV was. This persisted for a while when the bond market was dysfunctional and broken. That's actually a huge success for ZAG, XBB, etc. They continued to offer bond liquidity through that period.
This is interesting. It suggests bond pricing, at key moments, is more like equity pricing.

The bond ETF prices plummeted, appropriately reflecting underlying pricing. It was accurate — but it was also a buying opportunity. No different than buying a bank in late March.

Have to admit that I do own some Ford Credit. Not a good choice. Should have learned back in day when we just squeaked through to maturity with GMAC and Ford Thunderbirds. Hopefully the Ford I still own will hang in there.
Flukey guess on my part. I owned a GMAC bond in the early 2000s and felt the same way about it — relieved to get my principal back.
It was sold to me by our full service broker at the time. Just another part of learning whose interest brokers are really looking out for ...
 

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This is interesting. It suggests bond pricing, at key moments, is more like equity pricing.
Well I think bond fund pricing is like equity pricing in moments like we had. Because they are liquid, retail investor sentiment can drive the price down along with the equity market. The sky is falling, sell everything! I do not believe that distressed fund prices reflected the true value of the underlying bonds.

Retail investors seldom trade the less liquid individual bonds, so they would not tend to affect bond prices. Institutional investors may, and their trades should set bond prices at levels in accordance with their deemed risk when compared with alternative investments. No retail sentiment involved.

Interestingly, preferred shares acted much like those bond funds. They too are mainly held by retail investors. Issues that should be safe and solid were pulled down in concert with equities. They soon recovered, but there was a window when they too were on sale! (I added to my pfds at that time!)
 

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I went back to the proprietary note from the bank. I'll rephrase and duplicate it in point form notes here; I can't link or copy & paste the original.

; there is no central bond quote, like there are with stock exchanges
; there are different ways to estimate bond prices
(a) a valuation agent publishes the ETF NAV, a lagging (stale) price
(b) Bloomberg price surveys, available through terminals
(c) actual buy/sell prices at bond desks, at a bank

; no price is more "correct" than the other; they're all estimates!
; the estimates can diverge during illiquidity and market turmoil

We're all used to looking at (a) NAV. These prices are, apparently, inferior to (b) and (c). In normal times they are all pretty close, but in fast moving markets, (a) is stale and useless whereas (b) and (c) are more realistic.

; during this turmoil, the published bond fund NAV (a) was no good
; market makers provide the bid / ask for the bond ETF
; the market makers redeem ETF units and trade the underlying bonds
; the market makers therefore are pinned to price (c) above, and
; the ETF price (what a retail investor gets) correctly reflects real-world bond prices

Regarding what was going on behind the scenes, this bank says

; large corporations drew huge amounts on lines of credit
; institutions funding those loans go to the bond market to raise that money, as needed
; we got a massive spike in short dated corporate bonds being sold
; dealers on the buy side eventually bought all they could

; there were no more buyers, so the short term corp bond market went "no bid"
; once buying stopped, the market seized up / crashed
 

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I could see the argument that bond ETFs are "a bit too real" for some retail investors. In this crash, a retail investor looking at the XBB ticker was experiencing the same thing as having a Bloomberg terminal in front of them, showing institutional pricing. It can get scary!

There are probably many retail investors who really expect fixed income to be a steady and smooth experience. GICs provide that smooth experience, because there are no active, liquid prices.

I'm sure there are many people out there who were holding XSB and XSH as a kind of low risk cash equivalent. How many people sold out of XSH in a panic when the price plummeted 13% ? Hopefully not too many.

So this is an interesting experience and shows that the bond ETFs exposes the retail investor to wild & wacky things happening in the bond market. Someone investing in bond ETFs must be mentally prepared to hold long term despite periods of volatility.

If someone doesn't want to see volatility in fixed income, then GICs are the best alternative.
 

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While a bond ETF is equivalent to a rolling bond ladder of similar duration, the applications could be different. A bond or GIC ladder is great for someone who is using the interest and portion of the principal to fund relatively stable liabilities such as retirement expenses. A bond ETF is superior for those who plan to do rebalancing, tactical asset allocation, etc. It is similar to gold ETFs vs holding gold bullion. The ETF is easier to trade and liquidate. As for corporate bonds, ETFs also provide much needed diversification.

Most people don't have to choose one over the other. One could supplement a GIC ladder with a longer duration bond fund, enjoying the best of both worlds.
 

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Most people don't have to choose one over the other. One could supplement a GIC ladder with a longer duration bond fund, enjoying the best of both worlds.
Very good points Topo. And I agree, one could do this by holding the GIC ladder + ZFL or XLB, for example. That's effectively what I'm doing, except I use individual govt bonds; I have considered simplifying things and switching to ZFL.

As you say, this combination is the best of both worlds.

Inside my RRSP, which is a long term holding with no withdrawals, I just hold XBB.
 
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