With volatile markets causing bond ETFs to trade at a discount to their NAV, investors question whether these funds are trading at less than what they're worth. Matthew Tucker, iShares Head of Fixed Income Strategy, explains why the bond ETF price is the one that matters. Bonds trade OTC which means that there is little transparency into bond pricing. More importantly, most bonds do not trade every day. Because of this, the NAV of a bond ETF is an estimate based on the last known transaction price of each bond. In contrast, the market price of a bond ETF is what buyers and sellers on the exchange are willing to transact at right now. The ETF price is reflecting the most current information available as opposed to potentially stale bond prices. Bond ETFs are therefore crucial in shedding light on an otherwise opaque and illiquid bond market. (VIEW LINK)
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