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ARCHIVE
Growth in Bond Mutual Funds: A Question of Balance
By Sean Collins
April 8, 2021
Why have bond mutual funds grown substantially in the past several years? There are two possible explanations, with very different implications:
- One view: large inflows to bond funds have been driven by yield-seeking or return-chasing behavior. This explanation is promoted by commentators who worry that bond mutual funds could pose financial stability concerns—who fear that yield-chasing investors are likely to redeem en masse if yields on corporate bonds rise sharply and returns plummet, as might be anticipated during a financial crisis.[1]
- The alternative view: the growth in bond fund assets has been driven more by fundamental secular trends. If this view is correct, concerns about mass redemptions should be tempered.
The evidence is strong: growth in bond mutual funds has been driven by secular trends such as stock market returns, demographics, and changes in how retirement savers invest. These trends will be described in this and the next Viewpoints. In fact, as this Viewpoints demonstrates, given the strength of those trends, what’s surprising is that investors didn’t add even more money to bond funds than they did.
Chasing Yields? Really?
Mutual fund investors, including bond fund investors, do react to market returns. But if bond fund investors have been chasing yields and returns in recent years, they’ve been doing a poor job of it. As the left panel of Figure 1 shows, from January 2010 to December 2020, investors poured a total of $1.84 trillion in new cash into taxable bond mutual funds and exchange-traded funds (ETFs) with a focus on the US market (“taxable domestic bond funds”). At the same time, they redeemed a cumulative total of almost $1 trillion from mutual funds and ETFs with a mandate to invest primarily in US stocks (“domestic equity funds”).
Figure 1
Flows to Equity and Bond Funds and Returns in Their Relevant Markets
Flows to selected equity and bond mutual funds and ETFs, January 2010 to December 2020
1 Cumulative net new cash flow to taxable domestic bond mutual funds and taxable domestic bond ETFs compared with cumulative net new cash flow to domestic equity mutual funds and broad-based (domestic) equity ETFs.
2 Annualized percentages for total market returns from January 2010 to December 2020; return on stocks is total return on the S&P 500 index and return on bonds is total return on the Bloomberg Barclays US Agg Total Return Value Unhedged USD index.
Sources: Investment Company Institute and Bloomberg
However, that was clearly not because bonds outperformed. As the right panel indicates, stocks far outperformed bonds over this period: a 14.0 percent annual average return for the US stock market, compared to 4.1 percent for the taxable US bond market.
So, the evidence that inflows have been driven primarily by yield- or return-chasing retail investors is questionable. Conversely, there’s strong evidence in favor of secular trends.
Maintaining a Balanced Portfolio
The first such trend: investors trying to keep their portfolios in balance during the long bull market in US stocks.
Figure 2
The Bull Market in US Stocks Likely Prompted Investors to Rebalance Their Portfolios
Net new cash flow and change in assets of domestic equity funds, annual, billions of dollars
Note: Domestic equity funds includes domestic equity mutual funds and broad-based (domestic) equity ETFs.
Source: Investment Company Institute
From 2010 to 2020, the bull market in stocks has powered strong growth in assets for domestic equity funds. As Figure 2 shows, in nine of the past 11 years, investors redeemed significant amounts from these funds. Nevertheless, the strong appreciation of the stock market boosted these funds’ assets far in excess of investors’ redemptions. For example, in 2017, investors redeemed $80 billion from domestic equity mutual funds, but assets in these funds increased by nearly $1.5 trillion. The same patterns were repeated—indeed, were even more pronounced—in 2019 and 2020.
With assets in domestic equity funds rising so sharply, many investors no doubt chose to direct some of the outflows from domestic equity funds to bond funds in an effort to keep their portfolios balanced.[2] Figure 3 provides some evidence of this. From 2010 to 2020, there has been a striking inverse correlation between dollar outflows from domestic equity funds and inflows to taxable domestic bond funds.
Figure 3
Rebalancing Toward Fixed Income Boosted Inflows to Bond Funds
Net new cash flow, billions of dollars, annual
Note: The domestic equity funds category includes domestic equity mutual funds and broad-based (domestic) equity ETFs. The taxable domestic bond funds category includes taxable domestic bond mutual funds and taxable domestic bond ETFs.
Source: Investment Company Institute
This development may have been aided by automatic rebalancing tools. In recent years, investors have increasingly adopted strategies, such as model portfolios and robo-advisers, that periodically and automatically rebalance their portfolios to meet market conditions. When the stock market rises sharply, automatic rebalancing may shift investors’ balances in stocks toward fixed income or, in other words, from equity funds toward bond funds. In addition, households may tilt their periodic contributions to individual retirement accounts (IRAs) and 401(k) plans somewhat more toward bond funds.
Although investors cumulatively added more than $1.8 trillion in new flows to taxable domestic bond funds from January 2010 to December 2020, the US stock market was so strong that they arguably could have added even more.
Figure 4 illustrates this by comparing actual money flowing to taxable domestic bond funds to the amount investors should have added to maintain their 2009 allocations to bond and domestic equity funds—30 percent in bond funds and 70 percent in domestic equity funds. Investors poured a cumulative $1,843 billion in net new money into bond funds from 2010 through 2020 (dark blue). But to keep 30 percent of their assets in bond funds, they would have needed to add an additional $789 billion (light blue).[3]
Figure 4
To Maintain Balance, Households Should Have Purchased Even More Bond Funds
Net inflows to taxable domestic bond funds, billions of dollars, cumulative by year
Note: Taxable domestic bond funds includes taxable domestic bond mutual funds and taxable domestic bond ETFs.
Source: Investment Company Institute
This analysis suggests that portfolio rebalancing alone may be sufficient to explain the strong demand for bond funds in the past decade. But there are other fundamental secular factors driving that growth as well—factors that I’ll discuss in my next post.
Sean Collins is chief economist of ICI.
Other Posts in This Series
- Bond Mutual Fund Outflows: A Measured Investor Response to a Massive Shock
- What’s in a Name, Redux: For Bond Mutual Funds, “Corporate” Matters
- Growth in Bond Mutual Funds: See the Whole Picture
2 Redemptions from domestic equity funds may also, in part, have flowed to funds focusing on world stock and bond markets, as well as to collective investment trusts focusing on US and world stock and bond markets.
3 In 2009, the ratio of assets in taxable domestic bond funds to the total assets of taxable domestic bond funds plus domestic equity funds was 30 percent. The analysis in Figure 4 takes as given annual stock and bond market returns (as measured by the S&P 500 index and the Bloomberg Barclays US Agg Total Return Value Unhedged USD index, respectively). It also takes as given actual annual net new cash flows to taxable domestic bond funds and domestic equity funds. Given these, the analysis makes hypothetical purchases or sales of these two types of funds that are sufficient to keep the ratio of assets in bond funds at 30 percent at the end of each year. The analysis makes these hypothetical purchases or sales sequentially, taking 2009 as a starting point and proceeding year by year until 2020.
TOPICS: Bond FundBondsCOVID-19Corporate BondsFinancial MarketsFinancial StabilityFund RegulationMutual FundPolicy ResearchShareholder
Growth in Bond Mutual Funds: See the Whole Picture
By Sean Collins and Shelly Antoniewicz
March 19, 2021
In the past decade, a number of regulators and academics have discussed concerns about the growth in the assets of bond mutual funds, as well as their increasing share of the bond market, especially the corporate bond market. The concern is that bond fund investors, now playing a much larger role in the bond market, might massively redeem their fund investments during a market correction, potentially amplifying market stresses. A closer look at the data, however, reveals aspects of the growth in bond funds that should help assuage such concerns.
TOPICS: Bond FundBondsCOVID-19Corporate BondsFinancial MarketsFinancial StabilityFund RegulationMutual FundPolicy ResearchShareholder
What’s in a Name, Redux: For Bond Mutual Funds, “Corporate” Matters
By Sean Collins
March 11, 2021
Policymakers around the globe are studying the pandemic-related turmoil of March 2020 to determine what happened and why. Bond mutual funds have been one area of focus, and policymakers will be considering the data to assess whether structural reforms might be warranted. But gaps in understanding how regulated funds operate are adding to a flawed narrative about what happened last March—and are distorting analysis of the corporate and Treasury bond markets.
TOPICS: Bond FundBondsCOVID-19Corporate BondsFinancial MarketsFinancial StabilityFund RegulationMutual FundPolicy ResearchShareholder
Bond Mutual Fund Outflows: A Measured Investor Response to a Massive Shock
By Sean Collins
March 4, 2021
In recent months, we have seen many high-profile analyses arguing that bond mutual funds amplified stresses in financial markets during the start of the COVID-19 pandemic in March 2020. These analyses conclude that bond mutual funds therefore may require structural regulatory reforms. But as the information in this ICI Viewpoints and others to follow indicates, policymakers should not jump to that hasty conclusion.
TOPICS: Bond FundBondsCOVID-19Corporate BondsFinancial MarketsFinancial StabilityFund RegulationMutual FundPolicy ResearchShareholder
Market Turmoil and Liquidity Crunch Rooted in the COVID-19 Pandemic
By Sean Collins
October 14, 2020
The first paper in ICI’s new research series, “The Impact of COVID-19 on Economies and Financial Markets,” focuses on the relationship between the pandemic, the economic shutdown it triggered, and the volatility that gripped the markets.
TOPICS: BondsCOVID-19Corporate BondsFinancial MarketsFinancial StabilityMutual Fund
Debunking Assumptions About Bond Mutual Funds’ Flows and Bond Sales
By Shelly Antoniewicz
December 20, 2018
Recent outflows from bond mutual funds have drawn press attention and revived concerns among regulators about the impact of bond fund investors’ actions on the broader bond market. Unfortunately, this attention is rooted in misconceptions—as we’ll show using ICI’s comprehensive data covering 98 percent of mutual fund industry assets.
Understanding Interest Rate Risk in Bond Funds
By Shelly Antoniewicz and James Duvall
December 17, 2018
Long-term interest rates reached their lowest recorded levels in July 2016 and were on a steady upward trend until early December. Rates dipped recently, but that could be short-lived if global trade tensions ease and the outlook for economic growth remains robust. Investors should be aware of the effects rising interest rates could have on their bond fund investments....
TOPICS: Bond FundBondsExchange-Traded FundsFixed IncomeIndex FundMutual Fund
Mutual Funds and ETFs’ Share of the Corporate Bond Market: What’s the Right Answer?
By Shelly Antoniewicz
January 19, 2017
Participation by mutual funds and exchange-traded funds (ETFs) in US corporate bond markets was a topic of discussion during several sessions held at the American Economic Association Meetings in Chicago earlier this month. Panelists and presenters alike cited “statistics” on the share of corporate bonds held by funds. The funny thing was, they all cited different numbers, running the gamut from 18 to 35 percent.
TOPICS: Bond FundBondsExchange-Traded FundsFinancial StabilityFund RegulationMutual FundPolicy Research
The Taper Tantrum—Take II
By Shelly Antoniewicz
December 13, 2016
Long-term interest rates in the United States have been on the rise since summer 2016—slowly creeping up from July through October, and then jumping after the presidential election. Thus far, the response from bond mutual fund investors has been subdued. Nevertheless, various commentators—from the vice chairman of the Federal Reserve Board to the multinational Financial Stability Board—have expressed concerns that bond fund investors may rush to redeem shares to avoid portfolio losses stemming from unexpected increases in interest rates.
TOPICS: Bond FundBondsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeFund RegulationInterest RateMutual FundTreasury
Revised Fed Data Show Mutual Funds’ Share of Corporate Bond Market Is Small and Stable
By Shelly Antoniewicz
August 26, 2016
Discussions among regulators and the financial press about the role of bond mutual funds in financial stability risks have been fueled by concerns about the size and apparent growth in bond funds’ participation in corporate bond markets. But what if that role and its growth have been largely overstated?
TOPICS: Bond FundBondsFinancial MarketsFinancial StabilityFund RegulationMutual Fund
Matching Models to Reality: Bond Market Investors Don’t Follow the “First-Mover” Script
By Brian Reid
July 18, 2016
Fourth in a series of ICI Viewpoints testing the hypotheses of academics and regulators about mutual fund and investor behavior during times of market stress.
Regulators and researchers have put forward a common narrative that fund investors can destabilize markets during a period of market stress. They have advanced several hypotheses—including the concept of a first-mover advantage—to support their narrative. These hypotheses produce testable predictions about how fund investors behave in troubled markets: not only will investors redeem their fund shares but they also will stop purchasing new fund shares, thus creating large destabilizing net outflows from funds.
TOPICS: Bond FundBondsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeInterest RateMutual Fund
Matching Models to Reality: In a Falling Market, the Real “Movers” May Be...the Buyers
By Brian Reid
July 15, 2016
Third in a series of ICI Viewpoints testing the hypotheses of academics and regulators about mutual fund and investor behavior during times of market stress.
TOPICS: Bond FundBondsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeInterest RateMutual Fund
Matching Models to Reality: The Real-World Challenges to Regulators’ “First-Mover” Hypothesis
By Sean Collins
July 14, 2016
Commentators have long predicted that, one of these days, a market downturn will send U.S. mutual fund investors racing for the exits.
TOPICS: Bond FundBondsFederal ReserveFinancial StabilityFixed IncomeInterest RateMutual Fund
The Liquidity Provided by ETFs Is No Mirage
By Todd Bernhardt
June 20, 2016
The article above ignores fundamental information about ETFs, the behavior of investors, and the effects of market structure on the ETF product.
TOPICS: Bond FundBondsEquity InvestingExchange-Traded FundsFinancial MarketsFinancial StabilityFixed Income
The “Waterfall Theory” of Liquidity Management Doesn’t Hold Water
By Sean Collins and Chris Plantier
March 9, 2016
In a series of recent blog posts, economists at the Federal Reserve Bank of New York have discussed new research assessing the potential for bond mutual funds to pose systemic risks.
TOPICS: Bond FundBondsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeInterest RateMutual Fund
MetLife Case Shows That “Assuming the Worst of the Worst of the Worst” Doesn’t Work
By Mike McNamee
February 24, 2016
If regulators are going to impose strict rules and heavy burdens on a business, should they have to demonstrate that those rules and burdens address an actual and probable risk?
TOPICS: Bond FundBondsFederal ReserveFinancial StabilityFund RegulationGovernment AffairsMutual Fund
New Research by New York Fed Confirms: Bond Funds Don’t Pose Systemic Risks
By Chris Plantier and Sean Collins
February 23, 2016
In a series of recent blog posts, economists at the Federal Reserve Bank of New York discussed results from a theoretical model assessing the potential for bond mutual funds to pose systemic risks.
TOPICS: Bond FundBondsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeInterest RateMutual Fund
Derivatives—Please Don’t Let Them Be Misunderstood
By Shelly Antoniewicz
February 22, 2016
Derivatives are important portfolio management tools that provide funds with many potential benefits, including the ability to:
- hedge risk;
- enhance liquidity, because derivatives can be more liquid than traditional physical securities;
- gain or reduce exposure to unique markets or to asset classes when access through other instruments is difficult, costly, or impossible;
- manage or equitize cash; and
- reduce cost.
TOPICS: Bond FundBondsEuropeFinancial StabilityFund RegulationInternationalMutual Fund
High-Yield Bond Mutual Fund Flows: An Update
By Sean Collins
December 23, 2015
In an ICI Viewpoints on December 16, we debuted new weekly data on flows to high-yield bond mutual funds, presenting data through December 9. In light of continuing developments in the high-yield market, we have had requests to provide an update this week, taking into account the flows through December 16. Here is our overview.
TOPICS: Bond FundBondsFinancial MarketsFinancial StabilityInterest RateMutual FundTrading
High-Yield Bond Mutual Fund Flows: Some Perspective
By Sean Collins
December 16, 2015
Recent conditions in the high-yield credit markets have raised questions about the impact of market turmoil on mutual funds investing in that segment of the bond market.
TOPICS: Bond FundBondsFinancial MarketsFinancial StabilityInterest RateMutual FundTrading
The First Move: MSRB Issues a Proposal for Shortened Settlement Cycle
By Marty Burns
December 8, 2015
Recently, the Municipal Securities Rulemaking Board (MSRB) opened the door on the regulatory filings needed to move the U.S. securities markets to a shortened settlement cycle.
TOPICS: BondsFinancial MarketsFinancial StabilityFund RegulationOperations and Technology
U.S. Bond ETFs Resilient on August 24
By Shelly Antoniewicz
November 20, 2015
Some observers have suggested that equity market volatility on August 24, 2015, spilled over into other markets and products, in particular to bond exchange-traded funds (see, for example, Bank of England Financial Stability Paper, no. 34, October 2015, pages 26 and 27). In our analysis of the events of that morning, we conclude that U.S. bond ETFs were resilient and largely immune to the turmoil in the equity markets.
TOPICS: Bond FundBondsEquity InvestingEuropeExchange-Traded FundsFinancial MarketsFinancial StabilityFixed IncomeFund Regulation
The Wall Street Journal’s Dangerous Disservice to Investors
By Mike McNamee
September 22, 2015
For 75 years, mutual funds have successfully met their regulatory obligation to fulfill redemption requests within seven days, meeting investor demands and delivering on their investment objectives through good markets and bad.
Yet the Wall Street Journal seems determined to ignore this established history and the circumstances surrounding it. It has created a liquidity “measure” of its own devising—a test that no regulator has endorsed and no informed market participant would credit. The newspaper uses its self-invented process to imply that bond mutual funds are “pushing the limits” of Securities and Exchange Commission (SEC) guidelines governing fund liquidity.
TOPICS: Bond FundBondsEquity InvestingExchange-Traded FundsFinancial MarketsFinancial StabilityFixed IncomeFund GovernanceFund RegulationMutual Fund
New York Times Paints False Picture of Funds’ Emerging Market Investments
By Mike McNamee
August 24, 2015
With the global market turmoil over the past week, it’s no surprise that journalists are looking for hot stories of panic, investor flight, and impending crisis. Either they believe that investors are inherently flighty and panic-prone, or they believe that “this time is different” and investors who have not panicked before will panic now.
TOPICS: Bond FundBondsEquity InvestingEuropeFinancial MarketsFinancial StabilityFixed IncomeICI GlobalInternationalMutual Fund
The IMF on Asset Management: Sorting the Retail and Institutional Investor “Herds”
By Sean Collins
June 4, 2015
Part of a series of ICI Viewpoints about problems in the IMF’s analysis of the asset management industry.
In this ICI Viewpoints series, we’re examining the wide range of data errors, inconsistencies, results that don’t bear statistical scrutiny, and misinterpretations in the International Monetary Fund’s April 2015 Global Financial Stability Report (GFSR)—specifically, the chapter on “The Asset Management Industry and Financial Stability.” These problems undercut the IMF’s conclusion that “Even simple investment funds such as mutual funds can pose financial stability risks.”
TOPICS: Bond FundBondsEuropeFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundPolicy Research
The IMF on Asset Management: Which Herd to Follow?
By Sean Collins
June 1, 2015
Part of a series of ICI Viewpoints about problems in the IMF’s analysis of the asset management industry.
In April 2015, the International Monetary Fund (IMF) published its most recent Global Financial Stability Report (GFSR), which included a chapter titled, “The Asset Management Industry and Financial Stability.”
We have heard suggestions from more than one observer that the IMF’s GFSR Chapter on asset management provides a wealth of charts, tables, and data to support regulators’ case that regulated funds or asset managers could pose systemic risks.
TOPICS: Bond FundBondsEuropeFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundPolicy Research
The IMF on Asset Management: The Perils of Inexperience
By Sean Collins
May 28, 2015
Part of a series of ICI Viewpoints about problems in the IMF’s analysis of the asset management industry.
In April, the International Monetary Fund (IMF) released its most recent Global Financial Stability Report (GFSR), including a chapter on “The Asset Management Industry and Financial Stability.”
TOPICS: Bond FundBondsEuropeFinancial StabilityFund RegulationGovernment AffairsICI GlobalInternationalMutual FundPolicy Research
SEC Chair White Affirms Agency Has Tools to Address Risks in Industry
By Rachel McTague
May 8, 2015
The U.S. Securities and Exchange Commission (SEC) has the tools it needs to address systemic risks to the extent they exist in the asset management industry, said SEC Chair Mary Jo White at the opening session on the final day of ICI’s annual General Membership Meeting (GMM). White also announced that David Grim—who had been serving as acting director of the SEC’s Division of Investment Management—has just been named director of the division. White said she is thrilled that Grim, a 20-year veteran of the SEC in the investment management area, is taking the reins at a time when the Commission is moving forward to implement proactive regulations for the industry.
TOPICS: BondsCybersecurityEuropeEventsExchange-Traded FundsFederal ReserveFinancial MarketsFinancial StabilityFund RegulationGMMGovernment AffairsInterest RateInternationalMutual FundShareholderTreasury
The IMF Quietly Changes Its Data, but Not Its Views
By Chris Plantier
April 21, 2015
On Friday, April 10, we pointed out that the International Monetary Fund (IMF) apparently had vastly overstated the size and growth of bond fund holdings of emerging market bonds in its latest Global Financial Stability Report (GFSR).
TOPICS: Bond FundBondsEuropeFinancial StabilityFund RegulationICI GlobalInternationalMutual FundTreasury
Federal Reserve Reverse Repo Facility Helps Stabilize Short-Term Money Markets
By Chris Plantier
April 17, 2015
Following a pattern observed at the end of recent quarters, money market fund holdings of European issuers dropped at the end of March, although the decline was not as large as the previous quarter, ending December 2014. As we have noted before, for regulatory reasons European banks have been paring their balance sheets at the end of each quarter, resulting in a temporary decline in their desire to borrow from money market funds.
TOPICS: BondsEuropeFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury
More Unfounded Speculation on Bond ETFs and Financial Stability
By Shelly Antoniewicz and Mike McNamee
April 13, 2015
A recent column in the Financial Times warns of “another accident in waiting” in the growth of fixed-income exchange-traded funds (ETFs)—described as “financial alchemy” that converts illiquid bonds into “baskets” that “trade moment to moment on the stock exchanges.” This “illusory” ETF liquidity will disappear, the author warns, when investors “want to move en masse, and quickly, when the going gets less good.”
TOPICS: Bond FundBondsExchange-Traded FundsFinancial MarketsFinancial StabilityFixed IncomeInterest RateTrading
Why Long-Term Fund Flows Aren’t a Systemic Risk: Multi-Sector Review Shows the Same Result
By Sean Collins
March 4, 2015
In a recent blog post discussing why we believe flows from long-term mutual funds do not pose risk to the financial system, we posted a chart showing that outflows from bond funds are modest even during periods of stress in the financial markets.
TOPICS: Bond FundBondsFinancial MarketsFinancial StabilityFixed IncomeInvestor ResearchMutual Fund
Simple Answers to the Federal Reserve’s Quandaries
By Mike McNamee
February 24, 2015
The Federal Reserve System can’t get past its perplexities on the role of mutual funds in financial stability. Time and again, the Fed’s governors, regional presidents, and staff return to the same hypothetical risks and speculative scenarios in which mutual funds somehow pose a threat to the financial system.
TOPICS: Bond FundBondsExchange-Traded FundsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeMutual Fund
Why Long-Term Fund Flows Aren’t a Systemic Risk: Understanding the Data on Institutional and Retail Investors
By Sean Collins
February 20, 2015
In two previous ICI Viewpoints posts, I discussed the muted response of investors in long-term funds―which invest primarily in stocks, bonds, or both―to financial stresses, and examined some of the characteristics of funds and their investors that help explain that muted response.
TOPICS: Bond FundBondsFinancial MarketsFinancial StabilityFixed IncomeInvestor ResearchMutual Fund
Why Long-Term Fund Flows Aren’t a Systemic Risk: Plus Ça Change, Plus C’est La Même Chose
By Sean Collins
February 19, 2015
As discussed in a previous ICI Viewpoints post, regulators and others have voiced concerns that long-term funds―funds that invest primarily in stocks, bonds, or both―might experience large outflows during a financial crisis, adding pressure on financial markets.
TOPICS: Bond FundBondsFinancial MarketsFinancial StabilityFixed IncomeInvestor ResearchMutual Fund
Why Long-Term Fund Flows Aren’t a Systemic Risk: Past Is Prologue
By Sean Collins
February 18, 2015
A recent Brookings Institution conference on Asset Management, Financial Stability, and Economic Growth aired the “active policy debate on how to regulate asset managers to maximize economic growth without endangering financial stability.”
TOPICS: Bond FundBondsFinancial MarketsFinancial StabilityFixed IncomeInvestor ResearchMutual Fund
Bloomberg Ignores the Evidence on Bond ETFs
By Mike McNamee
September 26, 2014
In response to “Pimco ETF Probe Spotlighting $270 Billion Market Vexing FSB,” we posted the following comment on Bloomberg News’ website:
TOPICS: Bond FundBondsExchange-Traded FundsFederal ReserveFinancial MarketsFinancial StabilityFund RegulationInterest RateInternationalTrading
Sizing Up Mutual Fund and ETF Investment in Emerging Markets
By Chris Plantier
August 18, 2014
In coming decades, emerging market (EM) economies will need substantial new capital to accompany and sustain their rapid growth.
TOPICS: Bond FundBondsEquity InvestingEuropeExchange-Traded FundsFinancial MarketsFinancial StabilityFixed IncomeFund RegulationICI GlobalInternationalMutual Fund
The Real Lessons to Be Learned from 1994’s Bond Market
By Brian Reid
July 29, 2014
A recent “Heard on the Street” column in the Wall Street Journal (“Heeding 1994's Bond-Market Lesson,” July 27, 2014) is correct in saying that there’s a lesson to be learned from the 1994 bond market—but it draws the wrong lesson.
TOPICS: Bond FundBondsFederal ReserveFinancial MarketsFinancial StabilityFixed IncomeFund RegulationInterest RateMutual FundRetirement ResearchSavingsTradingTreasury
European Banks Significantly Reduced Borrowing from U.S. Money Market Funds in June
By Chris Plantier
July 18, 2014
As we discussed in March and April, European banks have generally become less willing to borrow from U.S. money market funds due to regulatory pressures, especially at the end of the quarter. Specifically, the new Basel III requirements seek to increase capital ratios of banks and explicitly limit how much banks fund their operations through short-term borrowing (which includes short-term securities banks issue that money market funds invest in). This quarter-end effect was particularly strong at the end of June as European bank regulators continued to monitor bank progress toward meeting the new Basel III requirements, which will be fully phased in over the next few years.
TOPICS: BondsEuropeFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury
GMM Policy Forum: BlackRock’s Larry Fink Speaks with ICI’s Paul Stevens
By Todd Bernhardt
May 21, 2014
The fund industry needs to stop focusing on the moment and start focusing on outcomes when advising investors on their resources, said Laurence D. Fink, chairman and CEO of BlackRock, at ICI’s Annual Policy Forum, part of the Institute’s 56th General Membership Meeting (GMM).
TOPICS: 401(k)BondsEventsFinancial MarketsFund RegulationGMMInternationalInvestment EducationMutual FundRetirement PolicySavingsShareholderTreasury
“Market Tantrums” and Mutual Funds: A Second Look
By Sean Collins and Chris Plantier
May 19, 2014
Over the past year, policymakers who are focused on financial stability have pursued a theory that mutual fund investors can destabilize financial markets by redeeming from funds when markets decline. According to this theory, redemptions by fund investors lead fund managers to sell securities; those sales drive asset prices down further and, in turn, spur more investor flight, redemptions, and price declines.
TOPICS: Bond FundBondsFinancial MarketsFinancial StabilityFixed IncomeFund RegulationInterest RateInvestor ResearchMutual FundTradingTreasury
Seasonality, U.S. Money Market Funds, and the Borrower of Last Resort
By Chris Plantier
April 16, 2014
The March money market fund holdings data indicate a large drop in the share of fund assets allocated to European counterparties and a large increase in the share of fund assets allocated to U.S. counterparties. This shift is likely temporary and reflects reduced willingness of European banks to borrow from money market funds at the end of the quarter, rather than reduced demand from money market funds. Also, the increase in lending to U.S. counterparties is almost entirely due to the large increase in money market fund lending to the Federal Reserve via its overnight reverse-repo (repurchase agreement) facility.
TOPICS: BondsEuropeFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury
U.S. Prime Money Market Funds and European Borrowing
By Chris Plantier
March 18, 2014
European holdings by U.S. prime money market funds have fluctuated significantly since early 2011.
TOPICS: BondsFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury
ETFs Don’t Move the Market—Information Does
By Shelly Antoniewicz
March 11, 2014
There they go again.
TOPICS: Bond FundBondsExchange-Traded FundsFinancial MarketsFixed IncomeInterest RateTrading
Money Market Funds and Liquidity Ratios: Why So High and Stable?
By Chris Plantier
February 19, 2014
Second in a series of posts about ICI’s new data release, a monthly compilation and summary of portfolio data from taxable money market funds. To find out more, read the first post about the new data summary or this list of answers to frequently asked questions.
The SEC’s 2010 money market fund reforms require taxable funds to hold at least 30 percent of their assets in securities that are deemed to be liquid within five business days (known as weekly liquidity) and at least 10 percent of their assets in securities that are deemed to be liquid in one business day (known as daily liquidity). In practice, money market funds—especially government money market funds—hold liquidity well above these minimum standards, and these ratios change very little in any given month.
TOPICS: BondsFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury
ICI’s New Data Release: Further Enhancing the Transparency of Money Market Funds
By Chris Plantier
January 21, 2014
The 2010 reforms to money market mutual funds greatly enhanced the transparency of these funds, giving regulators, analysts, and investors greater insight into important elements of funds’ holdings and operations.
The reforms required funds to disclose their entire portfolio holdings to the public on their company websites five business days after the end of each month. Money market funds also are required to file a more detailed disclosure—SEC Form N-MFP—with the Securities and Exchange Commission directly. The SEC releases this more detailed data to the public 60 days after it’s filed. The SEC does not, however, summarize the data, leaving the public with no non-commercial access to a broad look at holdings across the industry.
TOPICS: BondsFederal ReserveFinancial MarketsFixed IncomeFund RegulationInvestment EducationMoney Market FundsTreasury
Money Market Funds and the Debt Ceiling: What Do We Know?
By Brian Reid
October 14, 2013
As the U.S. Treasury reaches the limits of its borrowing authority this week, markets and the media are focusing on the risk that the United States will default on its debt and fail to pay interest or principal on maturing Treasury securities, perhaps before the end of October.
TOPICS: Bond FundBondsFederal ReserveFinancial MarketsGovernment AffairsMoney Market FundsTreasury
Bond Fund Flows: A Little Perspective on the Big Bond Market
By Brian Reid
July 3, 2013
The sharp run-up in interest rates since late April has caused many bond funds to experience their first losses in several years.
TOPICS: BondsFinancial Markets
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