Financial News on Investing and Bonds

Financial reforms to affect bond funds

Elevated margin requirements during private trading are on the horizon for fixed-income funds thanks to the latest reform bill.

In order to produce transparency during pricing, privately-yielded derivatives are to be traded on a clearing-house or simply exchanged; meaning that those who trade in derivatives will have to filed the margin with more capital.

Funds will need to adhere to a margin requirement now that centralized clearing-houses are brought into the equation.

All this will essentially mean that with a lowered risk margin, the returns for these funds will also drop.

Liquidity and availability of the derivatives in question could also suffer, once again driving up the final cost, and with a very small number of counterparties involved, the lowered liquidity might be overshadowed by rising costs.

Fund clients are being advised of these changes, yet nothing concrete has been put in place just yet.

In the end, the increase in costs is done in order to create transparency, which was confirmed by Jane Stafford of Stafford Law Firm LLC, who stated that transparency is much-needed and that the lowered returns might simply be necessary.