The largest electronic marketplace for US corporate bonds, MarketAxess, has developed a rather impressive set of tools which will help facilitate the creation of fixed-income exchange-traded funds.
On Monday, the financial service company officially announced its release of these five tools/indexes, designed to aid ETF sponsors in creating more tradable products – something that has long been a struggle of the fixed income environment.
Typically, a fixed-income ETF is made up of illiquid corporate bonds that have lesser trade value. Subsequently, this results in ETF market makers, who specialize in trading the underlying bonds as a hedge, to broaden their spreads in an attempt to avoid further risks.
MarketAxess’ president and chief operating officer, Chris Concannon said the tools provide a way to gain clarity into most traded bonds that would be viable to add in ETFs.
“It helps the ETF sponsor, or it helps the portfolio manager to select the right instrument. They can look at our index list and see these are the latest, most liquid bonds across sectors that I want in my index or in my ETF,” Concannon said.
“Your cost of trading that ETF or your cost of holding your portfolio is that much more attractive because we are incorporating the cost of trading fixed-income products into our index.”
The five tools come with daily updates and give measures on price, yield, spread and bid-ask terms.