The Era of the Bond ETF Has Finally Arrived

The inflationary tremors shaking Wall Street all year are causing big changes to fixed-income capital flows that could ultimately end up disrupting the money-management industry over the long haul.

Years after ETFs triggered a multi-trillion-dollar revolution in stock trading, bond investors are playing catch-up -- liquidating cash from mutual funds and loading up on exchange-traded strategies at an unprecedented rate.

As cross-asset volatility breaks out with echoes of the pandemic tumult, traders are going all-in on the famously cheap and easy-to-trade products in order to navigate the great 2022 bear market.

Unlike mutual funds, which price only once per day at the market close, ETFs behave like a stock and can change hands throughout the session -- an unrivaled trading advantage when Federal Reserve-induced gyrations rock global markets all day long.

“The Fed meets and tells the world at 2 p.m. what they’re going to do,” Sean Collins, chief economist at the Investment Company Institute, said in a phone interview. “With an ETF, you can respond immediately. With a mutual fund, you can respond at 4 o’clock.”

If the trend intensifies, expect loud noises from industry critics who fear ETFs are already creating liquidity and systemic risks -- including distortions in the very assets they track, from stocks to corporate bonds.