ETF Bonds And Types

ETF Securities is a 3rd generation ETF platform which offers investor low cost swap backed ETFs. This is originally started in UK which later on collaborated with many stock exchange markets which provide there investors with this facility. There are many types of ETFs which can be bought by an investor.

What are ETF Bonds

ETF Bonds are similar to the other kinds of ETF. The only difference is that bonds are not liquidated easily. This is because bonds are already fixed income assets which are not available in liquid form. They can only be traded once the bond matures and has a value in the secondary market. Another aspect of bonds is that their pricing is not transparent like other ETFs in the market. This makes it all the more difficult to sell the bond. The ideal thing is to hang on to the bond till it matures and then sell it. Once the bond ETFs are designed, trading them in the secondary market is similar to trading any other ETF.

Types of ETF Bonds

Many a times investors are prohibited from short-selling their ETFs. This is when inverse ETFs are used. When you enter inverse ETFs, these are used to equal the performance of and index or an underlying asset. In terms of bond ETFs there are many types:

Corporate Bond ETFs - Many corporate companies issue debt in forms of a bond so as to increase the capital.  These bonds are traded in the primary and secondary market. Different corporate bonds are included into different index. Sometimes these bonds become underlying assets which are traced by the corporate bond ETF.

U.S. Treasury Bond ETFs – Popularly known as T- bonds or Government bonds, are issued directly by the government itself. These bonds come from the US government which issues these bonds into the market. The risk factors to these bonds are much less when compared to corporate bonds. T-bond is bought in auctions. The starting price of the bond is $1000.

Municipal Bond ETFs – These are the bonds which are provided by the local government which are issued to raise capital. Municipal bond ETFs track all the bonds which are related to local government. The risk factor in the Muni bonds is very less compared to corporate bonds. Also when we compare the returns which the Muni bonds fetch with the corporate bonds then the later gives more returns. Biggest advantage of Muni bonds ETFs is that they are tax-free.          

Inflation-Protected Bond (TIPS) ETFs – As the name suggest, the inflation protected bond manipulates the value of the bond as there is a change in the inflation rate. On the contrary, even after the inflations rates fall, the value of the bond doesn’t alter and stays put. The value of the TIPS is guaranteed by the government.

Broad Bond ETFs – These bonds are mostly used in a portfolio. When an investor doesn’t know the duration of the bond then they supplement it with the broad band ETFs. There are ETFs which track the corporate as well as government bonds.

Short-Term Bond ETFs – The bond ETFs which have duration of 6 months or less, then they are termed as short-term bond ETFs. These bonds have short-term goals and are used only to fill up the short term gaps of the trade.

Intermediate-Term Bond ETFs – These are the favorite bonds of the investors. They have a longer utility but investors do not have to hold to these bonds long enough. These bonds last till around 3 years of duration.

Long-Term Bond ETFs – This is another type of bond ETF which is related to the time line. These bond ETFs have a very long duration. Some of the bonds extend as long as 15-30 years.

International Bond ETFs – International Bond ETFs are one of the major links to the emerging market which is spreading world-wide. Similar to the Muni bonds which work with the backing of the government only here the backing is done by a foreign government. The risk and the returns of these bond ETFs depend on the tax implication of the country.

Inverse Bond ETFs – Like explained earlier, some investors are restricted from trading accounts in the market. Also one of the major limitations which investors face is the short-selling ETFs. The Inverse ETFs are created to emulate the underlying assets performance.

Leveraged Bond ETFs – These bond ETFs are very advantageous when an investors gets them in the market.  Leveraged bond ETFs help to gain multiple returns from the underlying assets. But as the importance is given to the daily returns, many controversies have been surrounding Leveraged bond ETFs. These bonds only provide annual returns.

Convertible Bond ETFs – The corporate bond ETFs which can be redeemed for common shares are known as Convertible Bond ETFs. These common shares are traded by the debt issuer.

Mortgage-Backed Bond ETFs – In this case a mortgage backed security is not shown in the portfolio.  The assets which are mortgaged are not of high value but are rather sub-prime mortgages. This helps to keep the risk level in check.

Junk Bond ETFs – Junk bond ETFs have very low credit ratings, high returns and comes with high risk too. These kinds of bond ETFs are mostly used by amateur investors to fill their portfolio with these bonds.