Overview

Exploring High Yield ETF Liquidity

5 juin 2025 Temps de lecture: 5 min

Since the first fixed income ETF product launched in 2002 there has been tremendous growth, not only in assets under management but also in secondary market liquidity. This aspect of secondary market liquidity is a driving force behind the potential benefits fixed income ETFs can provide over individual securities or mutual funds. For instance, on-screen liquidity for ETFs that track niche areas of the market, such as EUR High Yield, trade at spreads roughly 5 times tighter than the underlying basket of constituents. Furthermore, these efficient spreads are accompanied by deep and accessible liquidity on the secondary market.

The below case study provides a broad comparison of the liquidity and spread dynamics of the EUR Corporate High Yield universe and ETFs tracking this exposure.

The High Yield Universe

The EUR corporate high yield universe includes bonds denominated in euro and with a credit rating between BB+ to CCC. As of 31 March 2025 EUR corporate high yield debt made up €382B of the existing €13.2T Eurobond market.

As of 31 March 2025, the UCITS ETF AUM invested in high yield bond exposure stood at €34.9B EUR, with the EUR High Yield UCITS ETFs representing €15.4B EUR of total AUM across this segment.

Trading Conditions

The unique structure of ETFs, where new shares can be efficiently created or existing shares redeemed via the primary market, supports the overall liquidity ecosystem, enabling liquidity providers to manage the supply and demand dynamics seen across markets. Low entry requirements, visibility and efficient spreads make the ETF vehicle an important for the investor toolkit.

The majority of high yield bond trading occurs over-the-counter (OTC), with potentially high associated transaction costs and large denominations, which results in fragmented quotes and markets. This can create significant access barriers to diversified, direct bond investing. Minimum increments are often as high as 100,000 par notional in the currency of issue, while the ETF will typically trade at a relatively low net asset value (NAV) figure.

Case Study: Euro High Yield ETF Liquidity

The liquidity of an ETF is not limited to its underlying market. The SPDR Bloomberg Euro High Yield Bond UCITS ETF (JNKE) generally trades more often than any of its underlying bond constituents (Figure 2). The ETF is also typically far more liquid than the average bond in the index.

JNKE tracks the Bloomberg Liquidity Screened Euro High Yield Bond Index (BEHLTREU), which offers a screening based on the liquidity of constituents. For a bond to be included in the index, it needs to have a minimum par amount outstanding of €250M. The methodology also applies a capping of 5% per issuer to ensure the index is diversified. As of 31 March 2025, the total amount outstanding of the index was €237B. As Figure 4 shows below, the index average daily volume has been €3.5B since 2021 and the average daily volume per bond has been around €7.8M.

JNKE’s replication uses stratified sampling — the ETF invests in a subset of the index following the underlying index characteristics, such as issuer, yield, liquidity, and term, while aiming to keep the same risk and return profile and minimise tracking error. As of 31 March 2025, the three months turnover of the JNKE underlying basket was €79B.¹

The custom in-kind process for creation/redemption means that the portfolio manager and authorised participants (AP) do not have to trade all the bonds in the underlying index. This process is particularly beneficial for high yield indices where only a portion of the underlying bonds trade frequently. This in-kind mechanism allows the portfolio manager to benefit from the axes of APs, as the bonds can be transferred to the portfolio at a more efficient price than buying the bonds directly from the market.

Position for Liquidity With JNKE

We have shown that JNKE traded more often than any underlying index constituent, and that the BEHLTREU Index has a high liquidity profile. Given these considerations, investors can be confident trading trade JNKE in large blocks and potentially reduce the risk of running into liquidity constraints. Over time The fund has regularly seen flows of more than 10% of AUM since its inception on 9 February 2012, with no material impact on the underlying market or on tracking.

Learn more about JNKE

For questions on liquidity or pricing please contact the Capital Markets team

Footnotes

Disclosure

Marketing communication

For institutional / professional investors use only.

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7641877.6.1.EMEA.INST

Expiration Date: 28 February 2026

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