SEC Warns Bond Fund Managers
The staff of the SEC’s Division of Investment Management has issued a Guidance Update warning bond fund managers to re-assess risk management and disclosure. In the Guidance Update, the staff expresses concern about bond market volatility arising from Federal Reserve policy, rising interest rates, and less liquidity because of reduced dealer inventories. The staff advises bond fund managers to enhance portfolio stress testing over various time periods and to consider interest rate hikes, widening spreads, increased volatility, and reduced liquidity. The staff then goes on to suggest changing risk management strategies such as portfolio composition, diversification, and liquidity. The staff also recommends heightened communications with boards and shareholders.
OUR TAKE: Don’t blame the SEC the next time the bond market blows up. They warned you.