Bond funds would have to report how vulnerable their holdings are to interest-rate changes under a rule proposed Wednesday by the Securities and Exchange Commission.
The five-member SEC unanimously voted to seek comment on the plan, which would require mutual funds to disclose more about their exposure to derivatives, repurchase agreements, and securities lending. For bond funds, the reports would include a metric known as duration that shows how their bond holdings would perform if rates were to rise by 1 percentage point.
The proposal is the agency’s first move to address concerns that its rules haven’t kept pace with the growth and complexity of many funds, which use derivatives and other contracts to hedge risk and boost returns. Federal banking regulators have warned that bond funds could face steep losses if the Federal Reserve’s first interest-rate hike June 2006 forces them to sell assets quickly.
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