FT: The Fed Is Considering Charging Investors If They Want To Exit Bond Funds

Janet yellen nyuREUTERS/Carlo AllegriFederal Reserve Board Chair Janet Yellen waves to the crowd after receiving her honorary doctorate degree from New York University (NYU) at Yankee Stadium in the Bronx borough of New York, May 21, 2014.

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:

Though others were more sanguine:

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.”

Click here to read the full story at FT.com »

More to come …

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