The Basics

Most fixed income ETFs track market indices that follow targeted segments of the markets, such as US Treasury, high yield, or emerging market bonds. Institutional investors primarily use fixed income ETFs as core long-term investment holdings, tools for targeting precision exposures, and as financial instruments that serve as substitutes or complements to derivatives.

According to Greenwich Associates, institutions are employing ETFs because they are "easy to use", offer "liquidity", and can have "lower trading costs vs. cash bonds".

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Benefits of Fixed Income ETFs

Institutional investors are recognizing the strategic role fixed income ETFs can play in bond investing. Here's why.


Flexibility

ETFs enable a variety of broad and targeted exposures

Fixed income ETFs give you access to hundreds of cash bonds in a single trade, and enable you to create highly customized solutions by targeting specific fixed income sectors. With ETFs, you can increase or decrease exposures to target sectors more quickly than you could otherwise do in the OTC bond or derivative markets.


Click here to disaggregate the Barclays Agg, etc.
Disaggregate Barclays Agg


Liquidity


ETFs can offer an additional source of liquidity for fixed income investors

The growth of the fixed income ETF market has helped create a new source of liquidity for bond investors, above and beyond what you can access in the OTC market. With fixed income ETFs, you effectively get an additional trading venue—the stock exchange—where shares can be transferred among investors without relying on the OTC market.


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Cost-Effectiveness


ETFs may provide bond investors with significant cost savings

iShares ETFs generally offer price improvement, making the ETF less expensive to trade than a comparable portfolio of bonds. Relative to a basket of bonds, ETFs offer the benefit of on-exchange liquidity, which often results in lower transaction costs.


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Efficiency


ETFs help overcome the challenges of the OTC market

Because ETFs are traded on a centralized exchange, they allow investors to see execution prices throughout the day. With ETFs, fixed income investors have full transparency into trading volumes, pricing, and transaction costs, making them valuable tools for navigating stressed markets.


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Key ETF Investment Trends

Discover how institutions are employing ETFs to shift allocation and new exposures.

ETF Mechanics

Portfolio managers must balance art and science in navigating the bond markets to ensure ETFs track their benchmarks.

Top Applications of ETFs

Impact of currency in 2014

iShares Fixed Income ETFs can help you achieve both long-term strategic and short-term tactical objectives.


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Joshua Penzner

Joshua Penzner
Managing Director
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Mike Rife

Mike Rife
Director
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The Guide to bond ETFs

Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses, which may be obtained by visiting the iShares ETF and BlackRock Fund prospectus pages. Read the prospectus carefully before investing.

Investing involves risk, including possible loss of principal.

Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments.

Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.

An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency and its return and yield will fluctuate with market conditions.

International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/ developing markets or in concentrations of single countries.

There can be no assurance that an active trading market for shares of an ETF will develop or be maintained.

Buying and selling shares of ETFs will result in brokerage commissions.

Shares of the iShares Funds may be sold throughout the day on the exchange through any brokerage account. However, shares may only be redeemed directly from a Fund by Authorized Participants, in very large creation/redemption units.

When comparing stocks or bonds and iShares Funds, it should be remembered that management fees associated with fund investments, like iShares Funds, are not borne by investors in individual stocks or bonds.

Actively managed funds do not seek to replicate the performance of a specified index. Actively managed funds may have higher portfolio turnover than index funds.

The Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).

The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Barclays, Bloomberg Finance L.P., Cohen & Steers Capital Management, Inc., European Public Real Estate Association (“EPRA® ”), FTSE International Limited (“FTSE”), India Index Services & Products Limited, Interactive Data, JPMorgan Chase & Co., Japan Exchange Group, MSCI Inc., Markit Indices Limited, Morningstar, Inc., The NASDAQ OMX Group, Inc., National Association of Real Estate Investment Trusts (“NAREIT”), New York Stock Exchange, Inc., Russell or S&P Dow Jones Indices LLC. None of these companies make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with the companies listed above.


Neither FTSE nor NAREIT makes any warranty regarding the FTSE NAREIT Equity REITS Index, FTSE NAREIT All Residential Capped Index or FTSE NAREIT All Mortgage Capped Index; all rights vest in NAREIT. Neither FTSE nor NAREIT makes any warranty regarding the FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index, FTSE EPRA/NAREIT Developed Europe Index or FTSE EPRA/NAREIT Global REIT Index; all rights vest in FTSE, NAREIT and EPRA.“FTSE®” is a trademark of London Stock Exchange Group companies and is used by FTSE under license.

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