We can get bond live prices from various venues, for example, BBG's CBBT prices. Usually you would get bid/ask prices.

  • Are these prices prices that people called bonds' marked prices ?
  • are they actually where the bonds are/can be traded ? If not, what drives the actual trading prices for a bond.
  • If you want to come up with a sensible fair price for a bond ETF that is consistent with where the underlying bonds are traded. Would it be enough to just calculate the ETF price based on the bonds prices from a trading venue.

1 Answer 1

  1. It depends, sometimes dealers will mark to bid-side or where they have comparables to price to. It may be or it may not, it's largely a function of the trader's knowledge.
  2. No, CBBT is a valuation service not an actual quote. If you view a bond in BBG using ALLQ you may see where dealers are quoting live prices. The dealer's quote is likely to be close to the CBBT price.
  3. Yes, but you would want to have an idea of bid-ask spreads in that sort of trade, though. Simply taking a valuation based price to determine whether the ETF arb trades may deviate sharply from reality (e.g., if a handful of your bonds in the basket has no standing levels).

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