Trading in ETF shares, which acts as a liquidity valve in times of stress, has been soaring versus primary market activity, according to Bloomberg Intelligence. In February, the ratio for HYG jumped as high as 17-to-1. An active secondary market helps to keep the ETF itself relatively insulated from the mass redemptions that some say could pose problems.

Monday was “the first day that we’ve seen credit widen materially,” Nick Maroutsos at Janus Henderson said yesterday. “We haven’t seen any forced sellers or heard of any forced sellers yet.”

The fact that the ETFs are trading at modest discounts to their net asset value may even be a selling point. In a relatively illiquid market, the price of the fund may be the most accurate one the market has got.

“To the casual observer it might appear that they are trading at pretty steep discounts to NAV, but my opinion is that they are trading in line to where the actual underlying bonds will be trading either today or whenever the individual CUSIPS trade next,” said Will Wall, manager of trading and operations at Riverfront Investment Group.

“The ETFs tend to be the most accurate vehicle for price discovery in markets like this.”

This article was provided by Bloomberg News.

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