Bond exchange-traded funds (ETFs) are a particular kind of ETF that only invests in bonds. Because they maintain a portfolio of bonds with varied specific strategies—from U.S. Treasuries to high yields—and holding periods—between long-term and short-term—they are comparable to bond mutual funds. Similar to stock ETFs, bond ETFs are passively managed and trade on major stock exchanges. In times of stress, this increases liquidity and transparency, which helps to foster market stability.Bond ETFs are a relatively new investment product, having been introduced in 2002. As a result, there is limited historical data on how they behave in a financial crisis. However, during the 2007-2008 global financial crisis, bond ETFs did not experience the same level of outflows as traditional mutual funds. This suggests that they may be less susceptible to investor panic and more stable in times of market stress. Bond ETFs also offer investors the ability to trade them during market hours, which traditional mutual funds do not. This gives investors more flexibility and ability to react to market movements.
