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THE MODERNISATION OF THE EUROPEAN BOND MARKET: THE DEVELOPMENT OF THE ETF ECOSYSTEM
The Covid-19 selloff in early 2020 upended financial markets and has had a large effect on how fixed income ETFs function: As liquidity in underlying markets has receded, ETF trading volumes have soared to all-time highs. Investors are shifting towards utilising baskets of bonds (as opposed to single bonds) for investment and risk management purposes amid the vola- tile climate.
Growth of global fixed income ETF AUM
1000 1500 2000
500 0 2002 Global Bond ETF AUM AUM Forecast Sep 21 2024 UCITS Bond ETF AUM
BlackRock, as of 30/09/2021. This material represents an assessment of the market environ- ment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security. Forward looking estimates may not come to pass. All figures in US$.
This increasing number of institutional investors incorporat- ing ETFs into their investment framework has necessitated rapid development in the trading ecosystem. Technological advancements associated with the asset class are furthering the modernisation of the European bond market.
We saw how in times of stress, these instruments performed as intended, providing continuous liquid access to key exposures which allowed investment managers to manage their exposures in an efficient manner. Smadar Shulman, Head of Fixed Income Index EMEA
Smadar Shulman, Head of Fixed Income Index EMEA
ETF liquidity and continuous bond market pricing that comes with it has enabled a diverse ecosystem to develop both on the funded and unfunded side, as well as led to advances in price discovery necessary for efficient markets. We continue to see ETFs playing a key role in this ecosystem.
Longer term growth trend of fixed income UCITS ETF trading volumes ($ million)
519 431 383 2.053 1.318 2018 2019 OTC 2020 On-exchange Source: BlackRock, as of 30/09/2021. All figures in US$.
Critical to this growth has been the increasing electronification of ETF trading, which has led to further automation, easier access and lower execution costs. More and more brokers are providing automatic quotes on ETFs through request-for-quote platforms, accelerating the execution of small and recurring orders. Banks have also been building out their ETF algorithmic trading capabilities, leading to the possibility of layering ETF execution strategies based on pre-programmed instructions. This has the potential to optimise trading by integrating multi- ple liquidity pools to source the best prices, minimise market
18 | portfolio institutional | March 2022 | issue 111 YTD 2021 2.256 2.227 539
AUM ($m)
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