Another advantage of the fixed-income exchange-traded funds is their ease in shorting the fixed-income market, claimed Pete Wilson, head of US fixed-income at BGI in San Francisco. Short positions could be taken by borrowing iShares or through use of iShare-based derivatives provided by the product's market-makers. BGI has only begun to seek market-maker interest in fixed-income iShares, but J Parsons, director of sales for iShares based in San Francisco, said the "usual suspects" – which he declined to name – are ready. "There are no holes in our coverage that I can see," Parsons claimed.
Because most of the corporate bond market trades over-the-counter, reliable pricing for a wide index could prove a challenge. BGI claimed it had circumvented this issue by using indexes comprised of highly liquid corporate issues that will effectively replicate the wider market. Re-weighting of the seven fixed-income iShares will be published every night, and 15 second price updates posted on market data service Bloomberg.
The BGI fixed income iShares are: a one- to three-year Treasury index fund, a seven- to 10-year Treasury index fund, a Treasury index fund, a 20-plus-year Treasury index fund, a Lehman Government/credit index fund, a Lehman corporate bond fund, and a Goldman Sachs corporate bond fund.
The week on Risk.net, July 7-13, 2018Receive this by email