Warning on corporate bond ETFs

Retail investors in corporate bond ETFs could be at risk as large institutional trades may be distorting the price of shares in the funds, analysts warn.

Institutional investors have been gravitating towards ETFs to trade illiquid corporate bonds, as Wall Street dealers reduce bond inventories in a bid to reduce risk, the Financial Times reports. However, analysts warn this may be creating a high level of volatility which could impact retail investors in the funds. "If institutional trades of large size lead gaps to open up between the share price of the ETF and the underlying index, retail investors could be deterred from using the ETF," said Neal Epstein, senior credit officer at rating agency Moody's. Assets in fixed income ETFs...