PT - JOURNAL ARTICLE AU - Hongfei Tang AU - Kangzhen Xie AU - Xiaoqing Eleanor Xu TI - COVID-19 Pandemic and Bond ETF Valuation Discount AID - 10.3905/jfi.2022.1.148 DP - 2022 Nov 29 TA - The Journal of Fixed Income PG - jfi.2022.1.148 4099 - https://pm-research.com/content/early/2022/11/29/jfi.2022.1.148.short 4100 - https://pm-research.com/content/early/2022/11/29/jfi.2022.1.148.full AB - The COVID-19 pandemic has had an initial and outsized negative impact on bond exchange-traded funds (ETFs), causing concerns for financial stability. Using a large panel of US bond ETFs, we conduct a comprehensive examination of the impact of the pandemic on ETF valuation discounts. We find the change in COVID-19 deaths to be significantly related to the valuation discounts of government bond ETFs and corporate bond ETFs, with investment-grade corporate bond ETFs showing greater sensitivity. These valuation discounts reversed dramatically after the Federal Reserve announced its intentions to purchase corporate bonds and bond ETFs. Government economic policies to combat the pandemic are also negatively related to the valuation discounts of corporate bond ETFs. These findings are evidence of the efficacy of broad-based liquidity support on restoring financial stability in the bond ETF market at a time of enormously stressed market sentiment and massive pricing dislocations.