Bond ETFs like BND AGG trading at unusual discount

[JB]

These ETFs are down big today, their NAVs aren't down nearly as much. Both are trading at a significant discount.

AS of 10/10
BND Nav 73.66 price 69.96
AGG Nav 96.99 price 88.40

Anyone know what's going on here?

 

[socca]

If you predict that interest rates are going to rise, you may decide to sell your bond fund, anticipating a future drop in NAV. Depending upon the type of bonds in the fund, you also might fear rising defaults if we do in fact have a severe recession/depression - another reason to sell the fund.

 

[JB]

It looks like it's credit fears as treasuries aren't down much, but JNK is down 14.5%.

 

[mud60609]

I don't understand enough about this. Couldn't someone do some arbitrage and make some money? Are all the players gone or out of money?

 

[DblDoc]

There is a thread about this over at the Bogleheads site. I don't pretend to understand what they are talking about so cannot summarize for you.

Bogleheads :: View topic - What the Heck is going on with BND?!?!

DD

 

[ziggy29]

Bottom line is that investors are pre-emptively dumping mostly performing assets in a panic about their potential for increased defaults. They are willing to take a big hit relative to NAV in order to get out. The fact that Treasuries were flat to higher indicates it's simply a credit quality issue. I haven't looked lately, but I'll bet junk bonds are tanking now.

 

[JB]

I don't understand enough about this. Couldn't someone do some arbitrage and make some money? Are all the players gone or out of money?

Maybe because you can't short the underlying bonds. It will be interesting to see what happens over the next couple of days.

 

[JB]

There is a thread about this over at the Bogleheads site. I don't pretend to understand what they are talking about so cannot summarize for you.

Bogleheads :: View topic - What the Heck is going on with BND?!?!

DD

Thanks, that was helpful.

 

[mud60609]

I found this post today

Largest Bond ETF Now Trading At a Massive Discount - Seeking Alpha