Bond funds to become Roach Motels?

Concerned about a run on the $10T corporate bond market, the Fed is considering imposing exit fees on bond funds, reports the FT.

"So much activity in open-end corporate bond and loan funds is a little bit bank like,” Fed Governor Jeremy Stein told the FT just before he stepped down last month. “It may be the essence of shadow banking is ... giving people a liquid claim on illiquid assets.”

Needless to say, the fees would be unpopular for investors, but fund managers may feel differently, and BlackRock, for one, has called for international rules on exit fees for some funds. Implementing exit fees would be easier said than done as a rule change by the SEC would be necessary, and some commissioners are reportedly set to put up a fight.


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Comments (20)
  • rambler1
    , contributor
    Comments (1048) | Send Message
    So just because the Fed painted itself into a $4 trillion corner. They expect to screw everyone else too by imposing withdrawal fees in what is supposed to be a free market.
    16 Jun 2014, 03:53 PM Reply Like
  • june1234
    , contributor
    Comments (4472) | Send Message
    Sounds like some version of the negative deposit rates EU just imposed Lets remember Feds game plan in 08 was a reaction not a plan.
    16 Jun 2014, 04:59 PM Reply Like
  • Lint
    , contributor
    Comments (385) | Send Message
    Don't worry, folks. The experts are in charge.
    16 Jun 2014, 03:59 PM Reply Like
  • King Rat
    , contributor
    Comments (1822) | Send Message
    Thankfully such a rule could not be passed over night, but I will be happy to exit now.


    What is unclear is, is this exclusively bond funds? What if a fund changes its prospectus?


    Is this only proposed for open-ended funds, ETNs, and ETFs? Would closed-end funds affected? Since buying and selling CEF shares does not affect the NAV or holdings, there would be no "systemic" risk.
    How about funds that are "income funds" that invest 70% in bonds? How about 50%? How about 30%?


    Too many questions.
    16 Jun 2014, 04:02 PM Reply Like
  • sethmcs
    , contributor
    Comments (3573) | Send Message
    Somebody sees the writing on wall.... There will eventually be a run on these types of funds. There is little value in bonds and tons of risk.
    16 Jun 2014, 04:12 PM Reply Like
  • David at Imperial Beach
    , contributor
    Comments (4381) | Send Message
    Seems like a good way to precipitate the very thing they are worried about. Trying to implement exit fees would surely cause a panic sell-off in bond ETFs.
    16 Jun 2014, 04:32 PM Reply Like
  • MisterJ
    , contributor
    Comments (1180) | Send Message
    If so then I will buy. Thank you.
    16 Jun 2014, 06:35 PM Reply Like
  • financeminister
    , contributor
    Comments (1228) | Send Message
    hmm, that was pretty blatent.
    16 Jun 2014, 04:54 PM Reply Like
  • steve4466
    , contributor
    Comments (167) | Send Message
    Sounds like those bond funds have become Too Big To Fail.
    16 Jun 2014, 05:59 PM Reply Like
  • lalex
    , contributor
    Comments (77) | Send Message
    A run will occur before they can implement such a thing.
    16 Jun 2014, 07:02 PM Reply Like
  • bd4uandu
    , contributor
    Comments (2074) | Send Message
    Looks like the Fed is afraid of their own shadow. Zero interest rates are coming home to roost.
    16 Jun 2014, 07:41 PM Reply Like
  • tjn6175
    , contributor
    Comments (46) | Send Message
    Will it apply to apple pie treasury etfs like ief or tlt. How about agg or bnd, the Barclays US agg index funds? Unbelievable. I thought the Fed was getting into the RRP game? Isn't that enough?
    16 Jun 2014, 08:52 PM Reply Like
  • PChan444
    , contributor
    Comments (514) | Send Message
    Chan wonder how such clowns became in charge of whole world
    16 Jun 2014, 08:54 PM Reply Like
  • Weighing Machine
    , contributor
    Comments (909) | Send Message
    Behold the festival of unintended consequences
    16 Jun 2014, 08:56 PM Reply Like
  • Brad Kenagy
    , contributor
    Comments (2976) | Send Message
    Did the Fed just call a top in bonds?
    17 Jun 2014, 12:04 AM Reply Like
  • IValueGrowth
    , contributor
    Comments (46) | Send Message
    Even considering this move seems like it would have a tremendous impact across the entire bond market spectrum from Treasuries, to Corporate, to Junk. Wondering what kind of a run we'll see today (From this move to 'avoid' it). Better to pop the bubble now than later, I suppose.
    17 Jun 2014, 01:14 AM Reply Like
  • tjn6175
    , contributor
    Comments (46) | Send Message
    If the move gets bonds away from a traders game like stocks, then bring on the fees. Just look at last years panic selloff. The bond market essentially panicked in June 2013 and basically priced down a 1% rise in interest rates with zippo fed rate change. Even the new TMTC funds took a hit. Even foriegn bonds sold off. Yes, let everyone pay a hefty exit fee so that my bond fund manager can actually manage the bonds in the fund.
    17 Jun 2014, 02:02 AM Reply Like
  • Michael Clark
    , contributor
    Comments (11824) | Send Message
    Why don't they just make it illegal to sell stocks? Buying is ok. But it is illegal to sell them? Oh, right: that destroys the system. I guess that is my point: the central bank micro-management is destroying the system. The more the Fed (and the rogue's gallery of Fed's everywhere) tries to fix things the more they break things. And it will not be easy to clean up this horrific mess.
    17 Jun 2014, 05:50 AM Reply Like
  • The_Hammer
    , contributor
    Comments (5110) | Send Message
    These Fed clowns are useless.
    17 Jun 2014, 07:49 AM Reply Like
  • selden
    , contributor
    Comment (1) | Send Message
    Why wouldn't a run start based on the thinking that the very need of an exit fee implies a fear that bond rates will begin to rise faster than the fed is willing to admit—either because they plan to do something based on the actual inflation rather than the politically-determined inflation, or because they simply lose even the illusion of control?
    27 Jun 2014, 11:43 AM Reply Like
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