The coronavirus-induced collapse of high yield bond markets focused attention on the role of bond ETFs in liquifying trading. An account may be found here.
ETFs’ greater liquidity relative to that of the underlying bonds allows them to trade at prices closer to values consistent with market sentiment. When sellers pressure high yield bond values, illiquid bond screen prices lag the markets’ valuation of the underlying bonds. But the more liquid high yield ETFs lose value more quickly, more closely reflecting market sentiment.
However, the high yield ETF is only an intermediate step in