The Financial Times reports the Federal Reserve is considering charging fees to investors seeking to exit bond funds.
“Officials are concerned that bond-fund investors, as with bank depositors, can withdraw their money on demand even though the assets held by their funds are long-term debt and can be hard to sell in a crisis,” the paper says.
The fee would require a rule change from the SEC.
There’s been a surge in demand for bonds since 2009 as the Fed kept rates low following the financial crisis. If rates suddenly come up, there could be a flood out of fixed income funds.
Some on “Bond Twitter” responded with shock:
How to start a run….*U.S. FED SAID TO MULL BOND-FUND EXIT FEES TO CURB RUNS: FT
— uglylukes (@uglylukes) June 16, 2014
Though others were more sanguine:
When you think about it, lots of hedge funds have exit fees and gates. Why not the FED?
— Patrick Grattan (@PatrickGrattan) June 16, 2014
In a recent paper spotted by Bloomberg’s Matt Boesler, Fed researchers and an Italian academic warned of “the preemptive runs that can be caused by the possibility of gates or fees may have damaging negative externalties.”
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