A recent IMF report highlights the emerging role of investor type—institutional vs. retail—in influencing bond market stability, particularly regarding exchange-traded funds (ETFs)

A recent IMF report highlights the emerging role of investor type—institutional vs. retail—in influencing bond market stability, particularly regarding exchange-traded funds (ETFs). The analysis reveals that corporate bonds in ETFs typically experience less volatility than those in mutual funds, but the impact depends on who owns the ETF shares. When institutional investors hold a larger share of the ETF, bond volatility tends to increase. In contrast, retail investors help offset this volatility, providing a stabilizing effect.

This finding challenges conventional market views, as previous research on ETFs' impact on market stability has been inconclusive. The IMF's research, based on data from U.S. ETFs and mutual funds, suggests that the behavior of institutional and retail investors plays a crucial role in shaping bond market dynamics.