## Figure 1.12. Strong Inflows into Exchange-Traded Funds Pose Challenges for the Less Liquid Fixed-Income Markets

## Source details

**Canonical URL:** [Figure 1.12. Strong Inflows into Exchange-Traded Funds Pose Challenges for the Less Liquid Fixed-Income Markets](https://www.imf.org/-/media/files/publications/gfsr/2018/april/ch1/pdf/figure1-12.pdf)

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### Overview
- Multi-panel figure showing interaction between ETF asset inflows into less liquid bond markets and implications for market structure, trading, and contagion risk.
- Panels:
  - 1. Assets under Management of ETFs Invested in Global High-Yield, Bank Loan, and Emerging Market Bonds (Billions of US dollars)
  - 2. Bond ETF Holdings as a Share of Total Market Value (Percent)
  - 3. Ratio of Average Trading Volume to Shares Destroyed or Created for US High-Yield and EM Bond ETFs (Six-month moving average)
  - 4. Flows as a Percentage of Net Asset Values for High-Yield Bond ETFs and Regulated Investment Funds (Percent)
  - 5. Average Dynamic Conditional Betas with S&P 500

### Key findings and observations
- ETFs invested in less liquid bond markets are receiving strong inflows.
- ETFs are owning a growing share of the underlying markets.
- The investor base of these ETFs is significantly more flight-prone than that of regulated investment funds.
- Although ETFs can provide additional liquidity to less liquid bond markets, their greater sensitivity to major liquid markets increases contagion risks.

### Exact figure annotations and numeric markers
- Axis and annotation values as presented in the figure:
  - Panel axes/markers: 0; 150; 0; 5
  - Panel numeric labels: 3; 8; 4
  - Time series tick labels (years): 2007 08 09 10 11 12 13 14 15 16 17 18 (as plotted across panels)
  - Additional numeric markers: 50; 100; 200; 1; 2; 3; 4; 5; 6; 7; –10; –5; 0; 5; 10; 15; 20
  - Small annotations: 0.0; 0.6; 0.1; 0.2; 0.3; 0.4; 0.5
  - Explicit outflow annotation: 3 percent (of NAV) outflows

### Asset and market categories displayed
- ETFs
- Regulated investment funds
- EM and US high-yield ETFs
- Underlying indices
- US high-yield bonds
- EM bonds
- Global high yield
- EM bonds
- Global bank loans
- EM ETFs
- US high-yield ETFs

### Implications highlighted
- Growing ETF ownership of less liquid fixed-income markets raises market-structure concerns.
- ETF investor flight-proneness implies potential for rapid redemptions and price pressure in underlying markets.
- Higher dynamic conditional betas with the S&P 500 indicate increased correlation and potential contagion from equity-market shocks to these bond markets.
- The ratio of trading volume to ETF creation/redemption activity is an important metric for assessing ETF-provided liquidity in stressed conditions.

*Sources: Bloomberg Finance L.P.; EPFR Global; Haver Analytics; ICE Bank of America Merrill Lynch; and IMF staff estimates. Note: The market value of underlying bonds in panel 2 is calculated using ICE Bank of America Merrill Lynch indices. EM = emerging market; ETF = exchange-traded fund; NAV = net asset value. S&P = Standard & Poor’s.*

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_Source: https://www.imf.org/-/media/files/publications/gfsr/2018/april/ch1/pdf/figure1-12.pdf_