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WTF with My ETF??
Old 10-12-2008, 08:54 PM   #1
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WTF with My ETF??

I own BND and it has been trading at a 5% discount NAV. The corresponding fund is only down about .4% on the same day. I know that the ETF trades like a stock but I never expected it to have such a persistent discount NAV. There are lots of bond ETFs that seem to be experiencing the same thing. AGG, CFT, LQD. Should I expect the gap to close? If I knew this discount could get this wide I would have stuck with the corresponding vanguard fund which has little volatility. The underlying securities are mostly government backed. This has me worried because I noticed that the muni ETFs are getting hammered and they are really trading at a discount.

Does this mean that the market is sending a bearish signal and that BND is poised to dive more. 5% a day for a bond index fund is more than I can handle. My equities are doing better.

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Old 10-13-2008, 01:26 AM   #2
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No it means the market is so screwed up that arbitrage folks can't/are unwilling to close the gap between the NAV of the ETF and the market price.

This article in Seeking Alpha explains what is going on. I have no opinion about Bond ETFs, but if you were thinking about putting more money into a Bond ETF, this would be an excellent time to do so. This gap will eventually narrow.

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Old 10-13-2008, 06:18 AM   #3
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government bonds have been crazy lately as people bid their price up for a safehaven

muni ETF's were also seen as risky since if we get a severe recession and deflation where are the local governments going to get money from to repay the bonds?
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Old 10-13-2008, 08:20 AM   #4
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I think the corporate bond ETFs like BND and AGG are up sharply today as Treasuries are down and the market is feeling better about credit risk.
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