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Bond ETFs threatened by credit crisis

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Exchange-traded funds’ relative stability is being threatened by the crisis affecting other markets, according to MarketWatch. The site reports bond ETFs have suffered unusual premiums and discounts to net asset value. Illiquidity in the fixed-income markets has contributed to difficulty pricing and trading bond ETFs, as well as disagreement about where bonds should be priced, according to Matthew Tucker, head of fixed-income investment strategy at Barclays Global Investors.

Tucker told MarketWatch the NAV may not be the most accurate way to value ETFs because they are an estimate of the value rather than the actual price.

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“What’s happening is the ETFs are providing the market with price discovery,” he said. “The NAV is an estimate of what the ETF share is worth, but the actual price is determined when buyers and sellers come together.”