WTF with My ETF??

returnofbabyape · 10-12-2008, 09:54 PM

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.

clifp · 10-13-2008, 02:26 AM

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.

al_bundy · 10-13-2008, 07:18 AM

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?

**ziggy29** · 10-13-2008, 09:20 AM

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.

10-12-2008, 09:54 PM	#1
returnofbabyape Confused about dryer sheets Join Date: Jun 2006 Posts: 7	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.

10-13-2008, 09:20 AM	#4
ziggy29 Moderator Join Date: Oct 2005 Location: Texas Hill Country Posts: 3,108	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. __________________ FIRE Clock: 11:27 PM. FIREd at midnight but very subject to change.... waiting for the government to privatize the gains and socialize my losses in my 401K...

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10-13-2008, 02:26 AM	#2
clifp Thinks s/he gets paid by the post Join Date: Oct 2006 Posts: 2,338	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.

10-13-2008, 07:18 AM	#3
al_bundy Thinks s/he gets paid by the post Join Date: Jun 2005 Posts: 1,430	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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