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
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
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.
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