Einblicke   •   Fixed Income

The Dynamics of Bond ETF Creation, Redemption and the Market Arbitrage Mechanism

Our panel of experts discuss the fixed income ETF creation and redemption process, how a well-managed custom basket process may support efficient executions, and how bond ETF arbitrage functions in a balanced ecosystem .

As fixed income ETFs become more widely adopted globally, it becomes critical for all investors to understand the underlying mechanics of these investment vehicles. To answer some of the key questions facing investors, we gathered a group of experts from across State Street Global Advisors and Jane Street to offer their insights. These insights reflect our panelists’ experience across capital markets, fixed income trading and indexing, and risk management. 

Among the many topics covered, our panel addressed the following:

  • How does the ETF primary market basket process differ between ETF asset classes and why?
  • What steps has State Street Global Advisors taken to ensure that its fixed income primary market process can handle sharp increases in the number and size of orders during stressed market periods?
  • Does the flexibility of the custom basket introduce tracking or other risks to investors?
  • What is ETF arbitrage and why is it important?
  • What happens to the bond ETF arbitrage mechanism in periods of market stress?