At the start of the century, Barclays Global Investors launched a weird little fund in Canada, a backwater of global finance. Today, its myriad offspring are rewiring swaths of the $130tn bond market. BGI’s creation was an exchange-traded fund, which occupied a pretty exotic corner of the investment industry. ETFs had only been around for a decade and there were less than 90 in existence, with total assets of $70bn.
However, as the two-lane speedway comment above indicates, the growing size of bond ETFs mean that they are having a mounting impact on the underlying fixed income market — especially in areas like corporate debt. If a bond can be delivered as part of a creation basket, it becomes more tradable. If you want, you can even deliver a massive portfolio of bonds to exchange for ETF shares.