Fair enough. Not many DIYers chatting on internet forums appear to have bought gov't bond only ETFs, or have not talked about it. J4B is the only one I know who has been vocal about it here.
OK thanks for mentioning that. So yeah, there is mispricing of these bond ETFs or perhaps different players disagree on the price of the corps inside the portfolios. Becomes very difficult to price these things when the buyers disappear and there are no bids.I understand bond ETFs sponsored by Vanguard and BMO (and probably others) have the same market vs NAV mis-pricing. There is going to be mis-pricing in times of crisis, whether ETFs, mutual funds, or individual bonds. There were essentially no Bids for corporate bonds earlier this week in any of the brokerage inventories.
My Bay Street contacts tell me that bond ETF pricing cannot be trusted these days. Based on that I would not trade anything meaning I would not place any buy or sell orders on ETFs.James:
Do you feel the same way about XSH right now?
The two funds in question are PH&N Bond Fund and Total Return Bond Fund. It's true that they have not experienced a gigantic downdraft like XBB.Can I ask, which bond mutual fund are you looking at? It's possible mutual funds will be a bit more immune to this effect than ETFs; this might be a consequence of the "ultra liquidity" of ETFs.
Personally I think it's a temporary drop in XBB which will normalize over the medium term (1-2 years) but not necessarily the short term. As XBB investors we should have a time horizon of years, the same as an investor in stock index ETFs.
I suspect that what we're seeing on ZAG, XBB etc is the same effect as what they describe for BND since these are direct Canadian parallels to BND.It’s one thing to see exchange-traded products stuffed full of relatively illiquid corporate bonds trade below the purported sum of the value of their holdings. It’s quite another to see such a massive discount develop in a more plain-vanilla product like the Vanguard Total Bond Market ETF (BND) as investors ditched the product to raise cash despite not quite getting their money’s worth.
The wider-than-normal bid/ask spreads that we are currently observing are the direct result of the volatility in the fixed income market, where the underlying bonds and other over-the-counter fixed income securities held by ETFs are experiencing very high levels of volatility. These market conditions are forcing the market makers, who subscribe for and redeem units of the ETFs, to increase their hedges against intra-day market volatility.
This is not unique to Horizons ETFs; most of the ETF industry is dealing with much wider-than-normal spreads which are a direct result of this intra-day market volatility and the requirement for market makers to hedge that intra-day market risk.
It is important to understand that while these spreads are most noticeable on fixed income ETF pricing, due to the transparency of ETF pricing, anyone transacting in the over-the-counter fixed income market would likely see even wider bid/ask spreads than what are reflected in these ETF prices.