A The popular investment-grade corporate bond exchange-traded fund reflects growing investor concerns as demand for hedging hedges rises and its purchase prices fall below its net asset value.

the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) has seen open interest on bearish put options hit a record in recent sessions, Bloomberg reports. Additionally, LQD closed at a 0.6% discount to its net asset value earlier in the week, reflecting the steepest discount to its net asset value since the pandemic market chaos that triggered widespread selling in the markets. credit.

A growing disparity between the price of an ETF and the value of its underlying assets generally indicates an increase in risk aversion for the underlying securities. For example, when the Covid=19 pandemic hit the markets, bond market liquidity disappeared as traders were reluctant to buy, but ETFs continued to trade in secondary markets, which contributed to a dislocation. history between the two markets.

The ETF’s current discount is attributed to volatility associated with the Russian-Ukrainian war, with commodity prices soaring and fueling fears of stagflation or slow growth and high inflation for Corporate America.

Meanwhile, the popular iShares iBoxx $Investment Grade Corporate Bond ETF is down 8% year-to-date and trading around its lowest level since April 2020. ETF investors are also abandoning the game in droves . LQD was among the most hated ETF games over the past week, seeing $1.5 billion in releases, according to ETFdb data. Additionally, according to Bloomberg data, LQD posted one of the highest put-to-call ratios based on options trading volumes as of March 7.

“Investors are more negative about credit quality” as the impact of Ukraine’s invasion becomes more appreciated, said Todd Rosenbluth, head of ETF and mutual fund research at CFRA. , to Bloomberg. The price dislocation and hedging are signs that they are “preparing for a riskier environment”.

The price dislocation of the iShares iBoxx $ Investment Grade Corporate Bond ETF is not an isolated event as it is just one example of a larger trend in the bond market. About 60% of bond ETFs are now trading at a discount to their net asset value, the highest level since March 2020 and double the long-term average of 28%, according to Bloomberg Intelligence.

For more information on the bond market, visit our bond ETF category.

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