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The Federal Reserve is mulling whether regulators should mandate exit fees on bond funds over fears the $10-trillion corporate bond market could be rattled by an investor run, reports FT.com.

Read: Conservative clients could hedge bonds

“Officials are concerned that bond funds are becoming ‘shadow banks,’ because investors can withdraw their money on demand, even though the assets held by the funds can be hard to sell in a crisis. The Fed discussions have taken place at a senior level but have not yet developed into formal policy, according to people familiar with the matter,” explains the report.

It adds that exit fees, which the Fed anticipates would make investors think twice before making withdrawals, could only be introduced with an SEC rule change. This will likely be difficult, sources told FT, because some commissioners aren’t warm to the idea.

Read more here.

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Originally published on Advisor.ca

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