NAV discounts in credit ETFs underscores the ‘dash for cash’ environment NAV discounts in credit ETFs underscores the ‘dash for cash’ environment NAV discounts in credit ETFs underscores the ‘dash for cash’ environment

NAV discounts in credit ETFs underscores the ‘dash for cash’ environment

Equities 4 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  ETFs tracking credit are trading at large discounts to NAV showing the intense stress and breakdowns in one of the key markets for retail investors and large financial institutions doing asset allocation. If confidence rises enough today due to the Fed's liquidity provisions yesterday and several short selling bans, and market makers have the risk capital available then we could see a big rise in credit today as these discounts are being close. So far equities have responded to policy action with Euro STOXX 50 futures up 7% from the recent lows.

Events in markets are dramatic and in one corner underpinning main retail portfolios the stress is extreme. Passive investment vehicles such as ETFs are seeing disorderly price action with market makers posting wide bid-offer spreads but more importantly the traded prices are significantly below the actually NAV (net-asset-values) of the ETF fund. One the ETFs we use in our tactical asset allocation is tracking global inflation-linked government bonds. The ETF closed yesterday with a 4.2% discount between the NAV and the last traded price. Almost every credit ETF in the US and Europe shows same stress. These discounts reflect that market makers cannot commit risk capital to arbitrage way this spread, but also risk aversion and general precautionary principles due to the massive uncertainty around those NAV values. The seeds are there for a massive rebound in credit bonds and the ETFs tracking them. But it requires more two-way flow by investors (one-side right now) and market makers willing to commit risk capital to close the discount.

Source: Bloomberg

Yesterday’s events will go down in the history books as one of the most violent trading days with clear liquidity disappearing from markets and a historic policy mistake in Europe. The S&P 500 cash index closed down 9.5% and the Europe STOXX 600 cash index closed down 11.5%. It all started with Trump’s horrible speech and travel ban Wednesday night which was followed up by probably one of the worst ECB meetings ever on par with Trichet’s massive rate hike blunder in 2011.

Yesterday was supposed to have been the big rescue day but ended up with Europe failing to deliver in terms of speed and size as we have gotten used to over the years. All eyes are now on Germany to open up the purse and allow deficits to increase dramatically to offset the economic pain from COVID-19 and credit market stress which will hit economic growth. The world needs a global coordinated action but the chance is little so policymakers and markets will be in a tug-of-war for some time, but eventually the policy response will equate the economic impact and markets will find its low.

The Fed did on the other hand deliver yesterday to save the money market and indirectly the hedge funds doing relative arbitrage with high leverage in the US Treasury market which uses the repo market for these strategies. The Fed’s liquidity provisions will hopefully stabilize credit markets and convince financial firms to commit risk capital to close obvious gaps across Treasuries and credit bonds. In addition several countries such as the UK, Spain, Italy and South Korea have all issued short selling bans which seems to be working today to increase confidence. Euro STOXX 50 futures are up 7% from the recent lows. But be aware that its Friday and many active funds don’t want too much risk into the weekend as these have proven bad for risk with Monday gaps as the market is digesting incoming COVID-19 numbers.

Source: Bloomberg

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.