MarketsMuse ETF and Fixed Income departments merge and gives credit to Morgan Stanley as they raise their own ETF flag with an innovative idea to package a single corporate bond issuer’s debt into one neat package so that ETF investors can express their bets on the issuer’s outstanding credit… Here’s the excerpt courtesy of Reuters:
A bank proposal to pool corporate bonds of a single borrower into an ETF-style “trust” to help solve the credit markets’ chronic illiquidity problem is being circulated among issuers and investors, and finding some support.
Though still conceptual, the idea initiated by Morgan Stanley reckons investors could find more liquidity in a single instrument that represents several bonds issued by one borrower in a certain maturity, than in the individual bonds themselves.
According to the proposal, the trust would get positions in all of an issuer’s outstanding securities in the secondary market.
It would then group them according to whether they have short, intermediate or long-dated maturities, and issue separate trust certificates against each of those maturity buckets.
An underlying unit of bonds to represent each maturity trust certificate would be created and redeemed in a similar way as existing bond index exchange-traded funds.
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