Global business news twenty four hours a day at Bloomberg dot com, the radio, plus mobile, and on your radio. This is a Bloomberg Business Flash from Bloomberg World Handquarters. I'm Charlie Pellett. Stocks a little changed on this first trading day of the new month. SMP five hundred index has capped its longest stretch of monthly advances since two
thousand fourteen. Today the SMP five hundred index up two points to two thousand ninety nine, a gain of one tenth of one percent, and has stack up four points, a gain of point one percent. Down Industrial is up two points to seventeen thousand, seven hundred eighty nine, a gain there of less than point one percent. Ten year yield one point eight four percent. Gold down to seventy to twelve fourteen eighty, a drop of point two percent.
Crude oil up ten cents forty nine twenty barrel ahead of the OPEC meeting, it is up by two tenths of one percent. I'm Charlie Pellett, and that's a Bloomberg Business Flash. You're listening to taking Stock with Pim Box and Kathleen Hayes on Bloomberg Radio. If you can't buy bonds as easily as you used to. What do you do? Trific story on the Bloomberg Today arguing that Wall Street is turning to e t F s exchanged red of
funds to sidestep persistent liquidity in the bond market. Broadly, joining us now to discuss this story is Tom Leiden. He is an e t F expert. He's the president of Global Trends Investments and E t F Trends to give us his view not only on what is driving the move into bond et s, but also if it's a good idea, Tom, Welcome back to the show. How
are you, Kathleen? Just great? U. The story points out that around the Bloomberg Today that global bond ETFs, which track bonding indexes and trade like stocks, attracted sixty billion dollars of inflows this year through according to black Rock numbers. And that's the most of the period since the funds were created fourteen years ago, and on pace to top last year's record total of ninety three and a half billion dollars. Yeah. Absolutely, Well, different from individual securities that
are priced pretty tightly. Um, you know, individual bonds always haven't enjoyed is great? Pricing and also as much liquidity. ETFs have done a lot to help that out. With all the money that's been moving into fixed income ETFs, you've got that much more liquidity because they've got them priced within the e t F themselves, So there's a
there's a great advantage there. On top of that, there's a due diligence that goes into creating the underlying index is whether it's a treasury index or a corporate index, or a high yield index or emerging market UH fixed income index, there's the underlying shares that are traded that really beg for an added incentive to liquidity. How does a bond e t F work? If I'm buy a bond mutual fund. The good thing is that their their ladder and the bonds are constantly turned over, so the
managers can kind of keep a steady return. The bad thing is if you want something to safe, like a regular bond, right, you don't have that because it's not a bond. A bond's price may go up and down, but a maturity you get back the value of the bond and you collect the interests along the way. How to e t F s work? Yeah, Well, in e t F is in fact a fund, but unlike a mutual fund, that can buy and sell the underlying securities and then are taxed fully when they buy and sell,
regardless if they hold them the maturity or not. There there's that pretty much pass through opportunity in the mutual fund. In the e t F, it's different. Et F shares has baskets of shares and these underlying shares are created or redeemed based on the demand for the the e t F itself, So there's a tax benefit there in the fact when you sell a share or you sell your own shares of an e t F, you don't
necessarily uh sell the underlying securities. So that's that's a good thing because the authorized participant that works with the index issuer can actually create these baskets and hold them for an extended period of time, So there's a little bit of an extra link in the chain, and there's a benefit to a the shareholder from a tax standpoint, but also uh there's almost the due diligence process because they do have to qualify to be part of that index,
where in a mutual fund, a mutual fund manager can buy or sell whatever he wants based on their own mandate. Tom are ec is structured so that you can redeem your shares for the actual underlying investments, which in this case would be bonds. Is there any evidence that's happening. Well, in many cases, if there is a lot of emption, the e t F provider has the ability, per the perspectives to actually offer up those in kind as opposed
to offer up cash. So in some cases we saw this a couple of years ago when we saw a sell off in the muni market, there were some et f issuers that did in fact offer up those shares and and it was up to the person that was receiving those to sell. The underline. Are some institutional investors using bonding tfs in a creative way, maybe as a liquidity buffer for core deet holdings, or again as a
way to actually buy the bonds themselves. Well, the great thing is today you have so many choices, just like the bond market itself. Uh, it's sliced and diced in so many different ways that if you're an institution or a fund manager and you've got money coming in and you want to be fully invested, it's really easy just to select an e t F that hones in on that specific gas of class. Critics are concerned in some cases about high yield e t s hi yield bondyts
and the fact they have on bond market liquidity. How about you, Well, you know, high yield is a growing part of the demand in the US now UH always deemed a little bit more risky. However, ever, high yield defaults have declined tremendously in the last five years and
more money has been flowing into that area. Um. There are also been periods of time when in the US we've seen rising interest rates that normally would seem to threaten a fixed income marketplace, but actually high yield bonds have done quite well in historical periods when we've seen we're rising, right, So I'm not as concern right now, I think again, when you add up all the pluses and minuses, most importantly, e t S has have provided
this added liquidity and better price discovery for underlying bonds. So do you recommend click click final questions, You recommend people look at bondy t s? Would you buy them? Absolutely? And you know we we talk about them all the time on e t F trends. Number one and and most importantly the diversification and the tax opportunities there versus
individual issues. You've got a lot of choice, all right, Tom Lydon, thank you so very much, President of Global Trends Investments and E t F Trends, talking about our Bloomberg story Wall Street. Turning to E t S two sidestep liquidity in the bond market. Thank you for joining me. Kathleen Hayes on taking stock today. Reggie Basil, thank you. Our technical directory and Sam Linga, our producer. We thank you as well. Tomorrow we're looking at the ECB and
the OPEQUE meeting. Keep it right here. This is taking stock. Bloomberg Laws next on Bloomberg Radio. Coming up, Bloomberg Law brought to you by S. S and C. More experienced, superior technology, independence and expertise. That's how S. S and C drives the future of fund administration. S S n C. They are the future of fund administration? Are you it?