Are Bond ETFs Facing a Hard Landing?


In a recent article entitled “Tough Times Ahead for Bond ETFs,” Cambridge University grad Paul Amery, editor of, which provides analysis and comment on Europe’s exchange-traded fund and index industry, expressed concerns that the bond exchange-traded fund boom may be past its peak, and that this does not bode well for the overall U.S. financial markets.

The essence of Amery’s argument is as follows:

Quantitative easing is expected to end later this month, which should push bond yields up and bond prices down. (However, the Fed could launch QE3, which would have the opposite effect.)

The euro-zone crisis is deepening. Record low trading volume suggests that investors expect defaults and are avoiding placing trades until bonds’ new terms are worked out.

The intertwining of government and bank liabilities ? with European banks propped up both by their own governments and by the European Central Bank ? sets the stage for the spreading of default risk.

Many investors have been driven into riskier areas of the bond markets in an attempt to increase yield via exchange-traded funds, particularly in the U.S. Several corporate bond exchange-traded funds had discounts to NAV of 5 percent or more in the 2008 crisis.

Bond exchange-traded funds have problems associated with pricing and lack of transparency.

Based on those concerns, Amery believes that the bond exchange-traded fund boom may have peaked, and given the fact that the bond market dwarfs the stock market, all U.S. investors should be wary.

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. Page Perry’s attorneys have extensive experience in representing investors in cases involving exchange-traded funds. For further information, please contact us.