Michael Milken redux? Regulators are going to expand the mutual fund trading probe to stale price arbitrage in junk bond funds, analysts told Reuters Wednesday.
And just last month, SEC Enforcement Director Stephen Cutler told Congress the commission is probing fund mispricing. A recent Heartland Funds filing revealed that the SEC is looking into the pricing of two of its high-yield funds.
Junk bonds are below investment grade but pay higher yields than other fixed-income instruments because of their risk of default. They have taken in a record $26 billion through Dec. 3 this year and have returned 26% versus a 7% return on corporate-grade bonds and a 1.2% Treasury yield.
"I would encourage [regulators] to look at this," Andrew Clark, a bond analyst with Lipper, told Reuters. "So much attention has been focused on the equity side that not too many people have been looking on the bond side."
Of all types of bonds, high-yields are the most prone to stale prices, which can sit around for days, even a month, due to their illiquidity. "They tend to be the most egregious examples of stale prices," Clark said.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.