Why do index-based fixed-income ETFs sometimes trade at a premium to NAV during days when the fixed income markets are closed?
The equity and fixed income markets do not always close on the same days. Several times during the year, index-based fixed-income ETFs will trade on US equity exchanges while the fixed-income markets are closed. In addition, US bond markets may only be open for a portion of the US equity trading day. For example, during Columbus Day, although index-based fixed-income ETFs can trade on the AMEX, the US bond markets are closed. These ETFs may trade at a discount or premium based on investor anticipation of bond appreciation the next trading day.This phenomenon is similar to observed discounts/premiums in equity index futures before trading in the US equity markets begins. The futures may trade at a discount or premium based on investor anticipation of index appreciation when the equity markets open for trading.
The equity and fixed income markets do not always close on the same days. Several times during the year, index-based fixed-income ETFs will trade on US equity exchanges while the fixed-income markets are closed. In addition, US bond markets may only be open for a portion of the US equity trading day. For example, during Columbus Day, although index-based fixed-income ETFs can trade on the AMEX, the US bond markets are closed. These ETFs may trade at a discount or premium based on investor anticipation of bond appreciation the next trading day. This phenomenon is similar to observed discounts/premiums in equity index futures before trading in the US equity markets begins. The futures may trade at a discount or premium based on investor anticipation of index appreciation when the equity markets open for trading.
