Interview, Fireside Chat
The ‘Equitization’ of the Credit Markets
- The "equitization of credit markets" is projected to persist, driving higher adoption of ETFs and broader lists among investors, which is anticipated to lower entry barriers and expand market participation through the months and years ahead.
- Liquidity and transparency enhancements are expected to continue, with credit ETF volumes projected to constitute a growing percentage of total daily bond market volume, thereby reducing transaction costs for participants.
- Investment grade and high yield credit ETFs currently account for approximately 15% and 30% of daily market value traded, respectively, with these ratios expected to rise as the ecosystem expands.
- Market evolution toward algorithmic and portfolio trading will likely persist, facilitating the daily transaction of hundreds or thousands of bonds and reducing costs for clients.
- Performance trends observed in March and April 2020 are expected to carry over into 2021 as new participants continue to adopt credit ETF products.
- Clients are increasingly expected to integrate credit ETFs into their investment processes as redeem mechanisms function effectively, with scale remaining a primary driver of market structure development.
- Firms are expected to invest in liquidity solutions that minimize human interaction to execute thousands of trades daily, driven by client demand for scale and efficiency.
- An influx of traditional equity market players employing quantitative or systematic strategies is expected to fuel ongoing innovations in credit markets as equity-style structures are implemented.
- New equity-originated participants are anticipated to create additional interaction opportunities for fundamental and traditional credit investors.
- Sustainability and ESG considerations are expected to become increasingly significant drivers of flows across the platform in the near and long term.
- Flows into ESG-focused credit ETFs are projected to continue increasing as individual investors seek methods to express views on sustainable portfolios.