With few corporate bonds being traded these days, fixed income mutual fund managers are having a very hard time running their funds, The Wall Street Journal reports.

With the market so illiquid, and the spreads so wide, some managers are turning to new issues, which tend to be higher priced than the discounted bonds on the market. Other portfolio managers are afraid to buy bonds if they won’t be able to offload them.

“Its been a very unusual experience,” said Gus Sauter, chief investment officer at Vanguard. “I’ve never seen a fixed income market the way this one is. Market-makers haven’t been carrying inventory.”

This is posing big problems for Vanguard, which has seen strong inflows into its bond funds but can’t invest the money, Sauter said. “We had to trade all day long [to get fully invested]. It’s been very difficult to spend the cash our funds had coming in.”

“The brokerages have become incredibly risk-averse and capital-drained,” said Bob Persons, co-manager of the MFS Bond Fund. “They’ve changed from being proprietary trading desks to being much more like traditional brokers, taking orders and finding sellers.”

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.