iShares Lehman Aggregate Bond (AGG)

All Comments on AGG

  • commenter
    Distressed
    Volatility
    Oct 13 01:00 AM
    My Website
    Largest Bond ETF Now Trading At a Massive Discount [view article]
    It looks like it is liquidity risk being priced into the underlying bonds that are frozen right now...

    All explained here folks

    www.indexuniverse.com/...

    "Bond ETFs Taking Divergent Paths In Murky Markets"

    Matthew Tucker is head of investment strategy for fixed income at Barclays Global Investors in San Francisco. IndexUniverse.com caught up with the busy bond executive on Thursday to find out how the ongoing credit crunch is impacting iShares' exchange-traded funds focusing on fixed-income markets.     Reply
  • commenter
    Alan
    Brochstein
    Oct 12 05:44 PM
    My Website
    Largest Bond ETF Now Trading At a Massive Discount [view article]
    I think your point is well taken, as some of the comments have adressed the issue. I do believe that a certain amount of NAV question discount should exist after considering the point. If the Corporate bonds are off by 10%, that would imply about a 2% total discrepancy. I don't know exactly how wide the spreads are on the "safer" securities that represent the remaining 80%. Still, though, consider this. If you own the Vanguard Total Bond Market Fund ETF (BND), I believe it is part of a larger underlying pool of assets that is offered as a mutual fund. If this persists, it would be almost riskless to sell the mutual fund (at the 4pm price) and buy the ETF at the 4pm close. My point isn't really that one should arbitrage this but rather suggest that this is a relatively cheap way to buy exposure to the broad bond market in a highly liquid and low cost manner. Some others have suggested that they would rather go after traditional closed-end funds at off-the-charts discounts of 30% or so, and I can't argue with that strategy in the long-run (though it is riskier and more expensive over time if the gap doesn't close quickly). Your acronym suggests that you might be able to tell me how wide the bid/offer is on Agency mortgages in the TBA market. Care to share? Reply
  • commenter
    mtgetrader
    Oct 12 05:30 PM
    Largest Bond ETF Now Trading At a Massive Discount [view article]
    Is it possible that the prices being used determine the NAV are implicitly being questioned by traders. If some sectors are trading with large bid/offer spreads or are not trading the prices being used may not reflect where one could hedge to exploit the "arbitrage". Reply
  • commenter
    Gre
    Oct 12 03:50 PM
    Largest Bond ETF Now Trading At a Massive Discount [view article]
    Thanks for all the fish. and you deserve accolades for answering comments in such a timely, well-written manner. Reply
  • commenter
    Xyrus
    Oct 12 01:02 PM
    Global Stock Markets: In the Grip of Fear? [view article]
    There is fear driven selling and there is logic driven selling. In this case, thy happen to coincide.

    One of the reasons why all these announcements of bailout and such don't sem to have any impact is because there is no truth hat these measures will do anything. That is backed up by the fact that they haven't one anything. Almost as soon as one plan is approved it either needs to be immediately increased or another plan has to be created.

    That ends up painting a picture that even our "leaders" really don't have a clue to how large and deep the credit crisis really is. Until they're more certain, people in general are going to sit it out on the sidelines and cash out.

    This is as much a crisis in confidence and trust as it is a financial crisis. Face it, the general populace has been lied to many time over the past in regards to the crisis. Firms have reassured their investors only to have to back track weeks later. Banks have reassured their depositors only to have the FDIC come in and take them over.

    If people don't trust banks, companies, or their leaders then they aren't going to put their money anywhere near them.

    And did I mention that the bailout package was extremely unpopular but was rammed through congress anyway?

    Here's the truth. No one knows how bad this is going to get. The Lehman settlement showed us one thing, that things are worse than they seem. Institutions still are not being 100% forthcoming. They will be forced to over the next couple of years, but until that happens the market is going to be a roller coaster at best.

    ~X~     Reply
  • commenter
    searcher
    Oct 12 12:32 PM
    Largest Bond ETF Now Trading At a Massive Discount [view article]
    Surely, those interested enough to own the security understand the Lehman 'connection'. The author isn't soliciting an arbitrage, merely pointing out that a mechanism to 'enforce' NAV exists and that it significantly distinguishes this security from any 'similarly' constituted CEF. Reply
  • commenter
    gollwoods22
    Oct 12 08:53 AM
    Global Stock Markets: In the Grip of Fear? [view article]
    how would a unified currency worldwide be backed ? Reply
  • commenter
    venividivici
    Oct 12 08:26 AM
    Global Stock Markets: In the Grip of Fear? [view article]
    Good cartoon. Maybe it's time for a lot of the pigs to be sent off to the slaughterhouse. Reply
  • commenter
    bobaka
    Oct 12 12:57 AM
    Largest Bond ETF Now Trading At a Massive Discount [view article]
    Seems like you gotta put a pretty serious discount to account for potential defaults on the 17% that's financials and industrials no? Reply
  • commenter
    Smarty_Pants
    Oct 12 12:48 AM
    My Website
    Largest Bond ETF Now Trading At a Massive Discount [view article]
    Half empty: You could always sell to the USTreasury bailout fund.

    BORROW $8.5 Billion, buy the ETF, then claim you are underwater and need 'saving'. Sell to the FED at $9.4 Billion, repay loan.

    Retire.     Reply
  • commenter
    Robert_A
    Oct 12 12:47 AM
    Largest Bond ETF Now Trading At a Massive Discount [view article]
    ahh, I knew there was a catch, there's always a catch. Now I know why closed end fund discounts get so extreme -- the fund managers aren't working for the shareholders, only for themselves. Reply
  • commenter
    Alan
    Brochstein
    Oct 12 12:37 AM
    My Website
    Largest Bond ETF Now Trading At a Massive Discount [view article]
    Robert_A,

    First, some of the closed-end funds surely could prove to be fantastic investments. Remember, though, that their managers get paid on the NAV, not the stock price. They have a disincentive to reduce the size of the ETF - it costs them money (i.e tendering for shares on the open market). I don't follow that market so closely, but I recall a lot of shareholder suits in the past.

    As far as buying the super-duper cheap closed-end funds and shorting the merely heavily discounted ETF seems foolish to me. Recall that the fees are much higher (over 5X, on an annual basis) for what you would be buying. Additionally, you are subject to active manager performance. Perhaps most importantly, you are assuming a great deal of risk known as "basis risk": You are short Treasuries, mortgages and investment-grade corporate bonds to go long either municipal bonds or junk bonds. I am not trying to make a "value" call on your proposed trade but rather point out some reasons that it isn't the lay-up that you perceive. I have friends and clients who have been buying the 30% discounted funds. Of course, they were buying them when they were at 15% too.     Reply
  • commenter
    Robert_A
    Oct 12 12:34 AM
    Largest Bond ETF Now Trading At a Massive Discount [view article]
    It seems this situation is a danger for ETFs (of all sorts) when they are very large. It could take very deep pockets for management to deal with extreme unbalances on either the buy or sell side. It sort of assumes a well-behaved market of the underlying assets. Reply
  • commenter
    Alan
    Brochstein
    Oct 12 12:30 AM
    My Website
    Largest Bond ETF Now Trading At a Massive Discount [view article]
    hardball 22, first, I would expect an exemption. Second, the 14 funds could be sold to someone else if necessary. Third, how much higher do you think the expenses would be? The fund has $9 billion in assets. It seems like the cost if even $1mm is rather trivial (it's late here in Texas, but that is about 1 bps). Why then aren't the other 13 funds trading at a big discount? This fund is a tuna fish and the other 13 are minnows. If this argument were true, the other funds would be reflecting the poor future economics even more. It's simply not an issue.

    I think that I have identified in the original article almost all of the underlying factors. I appreciate those of you who shared your opinions, as I learned that I omitted one factor: Bid-offer spreads have widened significantly, which contributes to some uncertainty regarding the true value of the NAV. Remember, though, that the illiquid bonds are primarily the pure corporate bonds, and they represent about 20% of the portfolio. Let's say that they are off by 10% - this would account for just 2% of the discount.     Reply
  • commenter
    hardball22
    Oct 12 12:17 AM
    Largest Bond ETF Now Trading At a Massive Discount [view article]
    *Sounds like there would be expensive rebalancing liabilities for the ETF if the Bond Index is outsourced to a third party by SEC mandate. The alternative would be (in the Wisdom Tree case) simultaneous reporting of AGG portfolio changes and changes to the LEH US Agg Bond Index. Such reporting would increase the management costs of the AGG ETF. Reply
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