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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Handquarters.
Speaker 1: I'm Charlie Pellett. Stocks a little changed on this first
Speaker 1: trading day of the new month. SMP five hundred index
Speaker 1: has capped its longest stretch of monthly advances since two
Speaker 1: thousand fourteen. Today the SMP five hundred index up two
Speaker 1: points to two thousand ninety nine, a gain of one
Speaker 1: tenth of one percent, and has stack up four points,
Speaker 1: a gain of point one percent. Down Industrial is up
Speaker 1: two points to seventeen thousand, seven hundred eighty nine, a
Speaker 1: gain there of less than point one percent. Ten year
Speaker 1: yield one point eight four percent. Gold down to seventy
Speaker 1: to twelve fourteen eighty, a drop of point two percent.
Speaker 1: Crude oil up ten cents forty nine twenty barrel ahead
Speaker 1: of the OPEC meeting, it is up by two tenths
Speaker 1: of one percent. I'm Charlie Pellett, and that's a Bloomberg
Speaker 1: Business Flash. You're listening to taking Stock with Pim Box
Speaker 1: and Kathleen Hayes on Bloomberg Radio. If you can't buy
Speaker 1: bonds as easily as you used to. What do you do?
Speaker 1: Trific story on the Bloomberg Today arguing that Wall Street
Speaker 1: is turning to e t F s exchanged red of
Speaker 1: funds to sidestep persistent liquidity in the bond market. Broadly,
Speaker 1: joining us now to discuss this story is Tom Leiden.
Speaker 1: He is an e t F expert. He's the president
Speaker 1: of Global Trends Investments and E t F Trends to
Speaker 1: give us his view not only on what is driving
Speaker 1: the move into bond et s, but also if it's
Speaker 1: a good idea, Tom, Welcome back to the show. How
Speaker 1: are you, Kathleen? Just great? U. The story points out
Speaker 1: that around the Bloomberg Today that global bond ETFs, which
Speaker 1: track bonding indexes and trade like stocks, attracted sixty billion
Speaker 1: dollars of inflows this year through according to black Rock numbers.
Speaker 1: And that's the most of the period since the funds
Speaker 1: were created fourteen years ago, and on pace to top
Speaker 1: last year's record total of ninety three and a half
Speaker 1: billion dollars. Yeah. Absolutely, Well, different from individual securities that
Speaker 1: are priced pretty tightly. Um, you know, individual bonds always
Speaker 1: haven't enjoyed is great? Pricing and also as much liquidity.
Speaker 1: ETFs have done a lot to help that out. With
Speaker 1: all the money that's been moving into fixed income ETFs,
Speaker 1: you've got that much more liquidity because they've got them
Speaker 1: priced within the e t F themselves, So there's a
Speaker 1: there's a great advantage there. On top of that, there's
Speaker 1: a due diligence that goes into creating the underlying index
Speaker 1: is whether it's a treasury index or a corporate index,
Speaker 1: or a high yield index or emerging market UH fixed
Speaker 1: income index, there's the underlying shares that are traded that
Speaker 1: really beg for an added incentive to liquidity. How does
Speaker 1: a bond e t F work? If I'm buy a
Speaker 1: bond mutual fund. The good thing is that their their
Speaker 1: ladder and the bonds are constantly turned over, so the
Speaker 1: managers can kind of keep a steady return. The bad
Speaker 1: thing is if you want something to safe, like a
Speaker 1: regular bond, right, you don't have that because it's not
Speaker 1: a bond. A bond's price may go up and down,
Speaker 1: but a maturity you get back the value of the
Speaker 1: bond and you collect the interests along the way. How
Speaker 1: to e t F s work? Yeah, Well, in e
Speaker 1: t F is in fact a fund, but unlike a
Speaker 1: mutual fund, that can buy and sell the underlying securities
Speaker 1: and then are taxed fully when they buy and sell,
Speaker 1: regardless if they hold them the maturity or not. There
Speaker 1: there's that pretty much pass through opportunity in the mutual fund.
Speaker 1: In the e t F, it's different. Et F shares
Speaker 1: has baskets of shares and these underlying shares are created
Speaker 1: or redeemed based on the demand for the the e
Speaker 1: t F itself, So there's a tax benefit there in
Speaker 1: the fact when you sell a share or you sell
Speaker 1: your own shares of an e t F, you don't
Speaker 1: necessarily uh sell the underlying securities. So that's that's a
Speaker 1: good thing because the authorized participant that works with the
Speaker 1: index issuer can actually create these baskets and hold them
Speaker 1: for an extended period of time, So there's a little
Speaker 1: bit of an extra link in the chain, and there's
Speaker 1: a benefit to a the shareholder from a tax standpoint,
Speaker 1: but also uh there's almost the due diligence process because
Speaker 1: they do have to qualify to be part of that index,
Speaker 1: where in a mutual fund, a mutual fund manager can
Speaker 1: buy or sell whatever he wants based on their own mandate.
Speaker 1: Tom are ec is structured so that you can redeem
Speaker 1: your shares for the actual underlying investments, which in this
Speaker 1: case would be bonds. Is there any evidence that's happening. Well,
Speaker 1: in many cases, if there is a lot of emption,
Speaker 1: the e t F provider has the ability, per the
Speaker 1: perspectives to actually offer up those in kind as opposed
Speaker 1: to offer up cash. So in some cases we saw
Speaker 1: this a couple of years ago when we saw a
Speaker 1: sell off in the muni market, there were some et
Speaker 1: f issuers that did in fact offer up those shares
Speaker 1: and and it was up to the person that was
Speaker 1: receiving those to sell. The underline. Are some institutional investors
Speaker 1: using bonding tfs in a creative way, maybe as a
Speaker 1: liquidity buffer for core deet holdings, or again as a
Speaker 1: way to actually buy the bonds themselves. Well, the great
Speaker 1: thing is today you have so many choices, just like
Speaker 1: the bond market itself. Uh, it's sliced and diced in
Speaker 1: so many different ways that if you're an institution or
Speaker 1: a fund manager and you've got money coming in and
Speaker 1: you want to be fully invested, it's really easy just
Speaker 1: to select an e t F that hones in on
Speaker 1: that specific gas of class. Critics are concerned in some
Speaker 1: cases about high yield e t s hi yield bondyts
Speaker 1: and the fact they have on bond market liquidity. How
Speaker 1: about you, Well, you know, high yield is a growing
Speaker 1: part of the demand in the US now UH always
Speaker 1: deemed a little bit more risky. However, ever, high yield
Speaker 1: defaults have declined tremendously in the last five years and
Speaker 1: more money has been flowing into that area. Um. There
Speaker 1: are also been periods of time when in the US
Speaker 1: we've seen rising interest rates that normally would seem to
Speaker 1: threaten a fixed income marketplace, but actually high yield bonds
Speaker 1: have done quite well in historical periods when we've seen
Speaker 1: we're rising, right, So I'm not as concern right now,
Speaker 1: I think again, when you add up all the pluses
Speaker 1: and minuses, most importantly, e t S has have provided
Speaker 1: this added liquidity and better price discovery for underlying bonds.
Speaker 1: So do you recommend click click final questions, You recommend
Speaker 1: people look at bondy t s? Would you buy them? Absolutely?
Speaker 1: And you know we we talk about them all the
Speaker 1: time on e t F trends. Number one and and
Speaker 1: most importantly the diversification and the tax opportunities there versus
Speaker 1: individual issues. You've got a lot of choice, all right,
Speaker 1: Tom Lydon, thank you so very much, President of Global
Speaker 1: Trends Investments and E t F Trends, talking about our
Speaker 1: Bloomberg story Wall Street. Turning to E t S two
Speaker 1: sidestep liquidity in the bond market. Thank you for joining me.
Speaker 1: Kathleen Hayes on taking stock today. Reggie Basil, thank you.
Speaker 1: Our technical directory and Sam Linga, our producer. We thank
Speaker 1: you as well. Tomorrow we're looking at the ECB and
Speaker 1: the OPEQUE meeting. Keep it right here. This is taking stock.
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