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Greenwich Associates’ study finds diminished bond liquidity drives demand for fixed income ETFs


A new report from Greenwich Associates finds that diminished liquidity in global bond markets is fuelling demand for fixed-income ETFs among institutional investors in Europe and the United States. 

The firm writes that a large majority of the institutions in the Greenwich Associates 2017 Fixed-Income ETF Study say they increasingly face challenges in trading, liquidity and security sourcing, prompting about 60 per cent to consider bond ETFs as an alternative vehicle for fixed-income exposure.

Due in large part to market liquidity and trading cost issues, 60 per cent of institutions have increased their use of bond ETFs in the past three years, the firm found, with allocations now averaging roughly 18 per cent of total fixed-income assets. Institutions that have stepped up their use of the funds value the versatility of bond ETFs as a portfolio tool, employing them to obtain narrow and broad fixed-income exposures in both high-level strategic functions and targeted, tactical applications.



One-third of current ETF investors plan to increase bond ETF allocations over the next 12 months, with European institutions planning to boost ETF allocations an average of 19 per cent, and US institutions targeting increases of almost 30 per cent. 

Based on those results and investors’ continued concerns about bond market liquidity, Greenwich Associates projects steady and, perhaps, even accelerating growth in bond ETF usage and investment among US and European institutions for the next three to five years.

The Greenwich Associates study comprised interviews with 87 institutions in the US and Europe that currently utilise bond ETFs in their portfolios. The goal of this research was to understand trends impacting the fixed-income investment landscape and the evolution of fixed-income ETFs. Respondents included investment managers, insurers, institutional funds, and (in the United States) registered investment advisors (RIAs).

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