Turmoil in bond markets and a spike in the number of investors wanting to withdraw money “raises questions” about the suitability of popular bond funds, leading analysts have suggested.
Bond funds – where savers’ cash is pooled and then invested in loans issued by governments and companies – are among the most popular holdings in savers’ Isas and pensions.
But analysts Manuel Arrive and Alastair Sewell of Fitch, the ratings agency, this week questioned whether these funds could withstand a rush to the exit by investors alarmed by a fall in bond prices.
They have suggested restricting withdrawals to weekly intervals and requiring more advanced notice as potential countermeasures.
They argue that while these funds allow withdrawals to be made on a daily basis, their managers may struggle to sell holdings quickly enough to be able to pay out. The technical term for this is a “liquidity mis-match”.
Mr Arrive said current markets raised doubts “about the suitability of open-end, daily traded funds for less liquid or illiquid assets”.
Well, err, quite. In fact, who thinks open ended funds in illiquid securities is a good idea in the first place?