The ETF-ization of everything continues apace. Which is cool, because ETFs are meant to keep things weird.
Bond ETFs have become a big business. The largest bond ETF, the Vanguard Total Bond Market ETF ($BND) now has some $84 billion in AUM. One bond ETF type that I thought would take off is target date bond ETFs. They have become a decent business, but by no means household names.
In U.S. in the past few weeks, single-stock ETFs have launched. While some people are skeptical of this format has been available in Europe for some time. So it only seems appropriate that single-bond ETFs. Yes, single-bond ETFs should also launch.
Admittedly we are talking about on-the-run Treasury bonds. Not exactly exotic stuff. Three of these ETFs launched last week covering the 3-month Treasury bill, 2 year Treasury note and the 10-year Treasury note. More launches are expected. Evie Lu at Barron’s writes:
These single-bond funds might look very simple, but they could be of tremendous help to many investors. Directly trading bonds has been a pain for investors who might lack the proper knowledge or connection. Since bonds don’t trade on exchanges, investors need to trade through one of the broker-dealers over the counter. That often means less transparency and worse liquidity.
Jared Dillian writing at Bloomberg is a fan. He writes:
I would characterize this as a positive financial innovation; in the world of ETFs, there are much worse. The iShares bond products have built up a great deal of credibility over time, and one of their attractions is that you can trade long-dated options on them, which you can’t do with bond futures. These new single-bond ETFs will be one of the more successful product launches of the year.
Given my forecasting track record I will stand aside on the future of single-bond ETFs. These launches are a reminder that we are living in the age of ETFs and innovation is alive and well.