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Article

Toward Greater Transparency and Efficiency in
Trading Fixed-Income ETF Portfolios

Ananth Madhavan, Stephen Laipply and Aleksander Sobczyk
The Journal of Trading Summer 2016, 11 (3) 32-40; DOI: https://doi.org/10.3905/jot.2016.11.3.032
Ananth Madhavan
is a managing director at BlackRock in San Francisco, CA.
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  • For correspondence: ananth.madhavan@blackrock.com
Stephen Laipply
is a managing director at BlackRock in San Francisco, CA.
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  • For correspondence: steve.laipply@blackrock.com
Aleksander Sobczyk
is a director at BlackRock in San Francisco, CA.
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  • For correspondence: aleksander.sobczyk@blackrock.com
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Abstract

The over-the-counter global corporate bond market, characterized by opacity and illiquidity, is undergoing a rapid transformation driven by new regulations and technology. Bond exchange-traded funds (ETFs) offer one vision of the possible future of the market, trading on organized exchanges with typically narrow spreads and high liquidity. The success of bond ETFs relies critically on the efficient functioning of arbitrage. In recent years, improved real-time technology combined with greater post-trade transparency (e.g., through TRACE) has made it possible to generate intraday estimates for a fixed-income portfolio based on individual bond data and macro-market parameters. In this article, the authors describe one possible approach to developing and implementing such an intraday estimate. From a practical perspective, they illustrate how investors and traders can use these estimates as a complement to existing data (such as end-of-day NAV) to better understand the underlying bond portfolio value during the trading day and for transaction cost analysis. More generally, the article illustrates the potential for new analytics to increase transparency and further accelerate the ongoing evolution of fixed-income markets.

  • © 2016 Institutional Investor, Inc.
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The Journal of Trading: 11 (3)
The Journal of Trading
Vol. 11, Issue 3
Summer 2016
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Toward Greater Transparency and Efficiency in
Trading Fixed-Income ETF Portfolios
Ananth Madhavan, Stephen Laipply, Aleksander Sobczyk
The Journal of Trading Jun 2016, 11 (3) 32-40; DOI: 10.3905/jot.2016.11.3.032

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Toward Greater Transparency and Efficiency in
Trading Fixed-Income ETF Portfolios
Ananth Madhavan, Stephen Laipply, Aleksander Sobczyk
The Journal of Trading Jun 2016, 11 (3) 32-40; DOI: 10.3905/jot.2016.11.3.032
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  • Article
    • Abstract
    • MODELING INTRADAY FIXED-INCOME PORTFOLIO VALUE
    • APPLICATIONS
    • CONCLUSION
    • APPENDIX
    • ENDNOTES
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