In an interview with IndexUniverse reporter Cinthia Murphy, head of fixed-income strategies for BlackRock [profile], Matt Tucker, head of fixed-income strategies, said he thinks the bond market is simply reflecting the current economic reality and that ETF redemptions don't hurt liquidity as much as mutual funds.

So I wouldn’t make such an absolute statement that there’s value back in bonds, but it’s fair to say that the 10-year Treasury was trading “rich” a few months ago, and is now trading more at a level that better reflects the level of growth and inflation that’s present in the U.S.

Tucker says ETFs have gotten a bad rap on after bond ETF redemptions:

…generally what happens in ETFs has less of an impact on the overall bond market than what happens in mutual funds. As an example, when investors pull money out of a bond mutual fund, managers have to raise cash, manage the liquidity, and bonds are going to be sold to support that flow.

Tucker also said he sees growth in term-maturity ETFs, showing investors want to be more certain of the length of their investments. They have the befenits of individual bonds, Tucker said:

A term-maturity ETF gives those same benefits. Investors can get diversification, and they’ll also get regular income in monthly distributions, while knowing that at some point in the future, the bonds in the fund mature and the fund pays out the proceeds of all those maturities to the investor.

Tucker's statement is interesting in light of BlackRock CEO Larry Fink's statement on targeting bond funds to duration. He told investors to stop targeting bond funds to duration now that interest rates are set to rise. The statement was made on the same day BlackRock started trading its target-maturity ETFs. To read more, click here. 

Edited by: Casey Quinlan


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