Same Same But Different: The Risk Profile of Corporate Bond ETFs

We examine how corporate bond ETFs differ from the bond portfolios they hold. ETFs exhibit lower liquidity risk but higher intermediary risk, especially for high-yield funds, less liquid portfolios, and those served by weaker Authorized Participants. Using a structural decomposition, we show that ETFs are more exposed to intermediation supply shocks, whereas the underlying bonds are more exposed to demand shocks. A stylized model rationalizes these differences through partial segmentation between ETF and bond markets. Overall, corporate bond ETFs transform the risk profile of underlying bonds, creating a trade-off between liquidity and intermediary risk.