All it takes is a few mouse clicks to buy shares in the Scout Unconstrained Bond Fund (SUBFX), an exchange-traded fund that tracks a concoction of debt tied to the government, financial firms, mortgage pools, and other entities.
And all it takes is a few mouse clicks to sell—something that has begun to worry Wall Street. Since the financial crisis, $900 billion has flowed into bond mutual funds and ETFs such as Scout Unconstrained, bringing the industry’s total holdings to $3 trillion. Fund investors who sell shares get their money back almost immediately, as if they were making a withdrawal from a money-market fund. The bonds that the funds own are far less liquid, often trading in telephone conversations or e-mails between brokers, away from exchanges. If too many people decide to get out of bond funds at the same time, the wave of selling could lead buyers to sit on their hands, bringing the system to a halt.
In the aftermath of the financial crisis, the Federal Reserve has kept short-term interest rates near zero to spur borrowing and boost economic activity. The unemployment rate has fallen to 6.3 percent, below the Fed’s target of 6.5 percent, and the central bank is curtailing its easy-money policies, reducing the amount of bonds it buys each month and getting closer to raising its benchmark interest rate. Economists surveyed by Bloomberg say rates could rise as soon as the end of this year.
Related Posts
- 77Why would anyone want to buy a bond that last longer than they do? These ultra-long-dated assets fell out of favor in the fallout from the financial crisis, as investors shifted to shorter-duration bonds to protect them against unpredictable spikes in interest rates. But now the "century bond" is returning…
- 73On Thursday Mohamed A. El-Erian was on CNBC`s Halftime Report and he said something that a lot of people have been saying regarding the bond market, and it needs to be cleared up, because the amount of poor understanding regarding the bond market by people who make their living, i.e.,…
- 69Bill Gross’ spectacular fall from the top of the bond market has put tens of billions in play at a time when minuscule yields demand a fixed-income superstar. A brilliant, battle-scarred billionaire, Jeffrey Gundlach, stands ready to be coronated. Bond manager Jeffrey Gundlach is wearing a white T-shirt, faded blue…
- 66Bond investors hungry for yield have pushed further and further into high-risk territory and Pimco sees five warning signals that credit markets are getting overly frothy. "The lower reaches of the credit market have become particularly stretched," Christian Stracke, global head of Pimco's credit research group, said in a note last…
- 66(Reuters) - Argentina said on Tuesday it would meet with a mediator for the second time this week in the country's dispute with "holdout" investors, lifting market hopes for a deal needed to avoid another painful debt default. With the economy already in recession, President Cristina Fernandez's cash-strapped government has…