Vanguard's bond ETF discount exceeds 6%

Fixed income disruptions

James Baxter-Derrington
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Vanguard's BND ETF has surged to nearly 40x average discount.
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Vanguard's BND ETF has surged to nearly 40x average discount.

Vanguard has seen its total market bond ETF (BND) suffer from the recent volatility, with its 12 March closing price trading on a 6.2% discount to NAV.

As noted, fixed income market disruptions in the week beginning 9 March caused greater disparity than is typical between the price of bond ETFs and the value of their constituent bonds, leading to this discount.

Fixed income ETFs tend to trade at a premium, rather than discount, to NAV, with BND's average closing premium totalling 0.17% since its launch in 2007.

Rich Powers, head of ETF product management at Vanguard, noted that discounts of 1-4% had become common across Vanguard's entire fixed income ETF range over the past fortnight.

He added: "Market prices for ETFs can move more rapidly than the net asset value. That is part of the price discovery process."