Fed Prepares For Bond-Fund Runs, Looking At Imposing "Exit Fee" Gates

Tyler Durden's picture

It was two short years ago that the Fed, in its relentless attempt to push everyone into the biggest equity bubble of all time, did something many thought was merely a backdoor ploy to forcibly reallocate capital out of the $2.7 trillion money market industry and into stocks when, as we wrote in July 2012, it contemplated imposing suspensions of fund redemptions to "allow for the orderly liquidation of funds assets." Or in other words "gate" money markets.

Since then various iterations of this proposal have been attempted, either by the Fed or the SEC, however due to stern industry push back (and the relatively modest amount of money at stake) the attempt to force investors to rotate their funds out of money markets (because it is quite clear that if the Fed is hinting at gating issues with a given asset class, it is only a matter of time before the hint becomes a reality) has failed, and as a result the total amount of notional capital held at money market funds has been largely unchanged in recent years.

Here comes attempt number two.

Only this time it is no longer aimed at money market funds, but that other most hated, by the Fed, asset class: bond funds, whose relentless inflows, we shouldn't have to remind readers are the main reason why the propaganda myth of a recovery, and the resulting con game, keep crashing and burning, as it is impossible to spin a 2.5% 10 Year yield as indicative of anything remotely resembling a recovery, and shows at best, a semi-deflationary world. Said inflows also are recurring evidence that whatever retail money remains unallocated, continues to go into the one asset class which is actively disparaged by the Fed at every opportunity.

In brief, if anything, the Fed would prefer that all retail investors pull their money out of bonds funds (and money markets of course), and invest them into 100x+ P/E biotech stocks. Because after all, today's stock market is nothing but the biggest Fed-propped Ponzi scheme in existence.

And in order to achieve that, according to the FT, "Federal Reserve officials have discussed imposing exit fees on bond funds to avert a potential run by investors, underlining regulators’ concern about the vulnerability of the $10tn corporate bond market."

FT justifies this latest unprecedented pseudo-capital control by sayng that "officials are concerned that bond-fund investors, as with bank depositors, can withdraw their money on demand even though the assets held by their funds are long-term debt and can be hard to sell in a crisis. The Fed discussions have taken place at a senior level but have not yet developed into formal policy, according to people familiar with the matter."

“So much activity in open-end corporate bond and loan funds is a little bit bank like,” Jeremy Stein, a Fed governor from 2012-2014 told the Financial Times last month, just before he stepped down. “It may be the essence of shadow banking is ... giving people a liquid claim on illiquid assets.”

The Fed's justification for this latest bazooka approach in forced capital reallocation:

Exit fees would seek to discourage retail investors from withdrawing funds, thereby making their claims less liquid and making a fire sale of the assets more unlikely.

"Oddly" there is nothing in the Fed's proposal about gating the most overvalued asset classes of all, equities, or say, biotechs and momo stocks, where the drawdowns, when they happen, are so fast and vicious, the bulk of hedge funds are still down for the year precisely because they were all led like obedient sheep into the Div/0 PE slaughter. Also, memory is a little fuzzy, but in the days after Lehman, it was equity hedge funds that promptly gated all their investors.... not bond hedge funds, which in fact were scrambling to deal with the influx of new funds.

Also, it goes without saying that "discouraging investors" from withdrawing funds is the last thing on the Fed's mind, which knows very well that when it comes to investor behavior all that matters is how the Fed's future intentions are discounted.

And with this unprecedented step, the Fed is sending a very clear message: it may be next year, or next month, or next week, but quite soon you, dear retail bond-fund investor, will be gated and will be unable to pull your money.

The only thing that was missing from the FT piece was a casual reference to Cyprus.

So what is the obvious desired outcome, at least by the Fed? Why a wholesale panic withdrawal from bond funds now, while the gates are still open, and since those trillions in bond funds have to be allocated somewhere, where will they go but... stock funds.

In other words, now that the Fed is pulling away from injecting tens of billions of liquidity into the market every month, it is hoping the investing population will pick up the torch. And since it has failed to incite the mass reallocation of funds from bonds to stocks, the Fed is willing to use every trick in the book to achieve its goal.

Sure enough, "introducing exit fees would require a rule change by the Securities and Exchange Commission, which some commissioners would be expected to resist, according to others familiar with the matter." However, those commissioners would be promptly silenced when a joint effort between the NSA and the Fed were to threaten the release of embarrassing photographs or conversations to the general public. And watch how all dissent promptly disappears, and the Fed once again demonstrates it is increasingly more helpless in not only preserving the biggest asset bubble in US history, but at modeling and nudging human behavior.

Sadly for the Fed, America is now on to its endless bullshit experiments. Because absent an executive order from Obama demanding that Americans invest every spare Dollar in a Ponzi scheme, this too attempt to forcibly reallocate capital from Point A to Point B will fail.

Which, however means one thing: since the Fed is so desperate it has to float trial balloons of this nature in the financial press, the untapering can't be far behind, and with it QEternity+1.

Finally, just like in Europe with its revolutionary NIRP experiment, it will also confirm that the real economy has never been worse than it is now.

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kliguy38's picture

"We're gonna need a bigger gate"

ZerOhead's picture

So naturally you'll get a smaller gate.

(The better to throttle you with while you get ass-raped on the way out...)

DoChenRollingBearing's picture

Best to get something out now, before the gate appears...

And choose different exits...

Kaiser Sousa's picture

well will u look at that...

the Dow just turned green in the last 9 minutes to wipe away all loses...

and Gold and Silver which where attacked at the same times in London and NY, then traded sideways all day long, r now shedding additional gains on the Globex...

miracles do happen...

gh0atrider's picture

Bits of cryptose are beginning to form and foam at the corners of gh0atrider's mouth.  Can barely contain himself....

zaphod's picture

From the FED's comments, their focus seems to be to match the liquidity of the funds with the liquidity of the underlying assets. This is reasonable in a sense. The high liquidity of bond funds makes investors think they can enter/exit at will, but the underlying bond market does not support this.

Of course the issue is (as with everything with the FED) that while the FED only looks at regulatory and control solutions, there are many other potential solutions as well, but the FED never considers anything other than expanding it's control.

Manthong's picture

Gated.. Haircut..

Seems the language is compromised.

Home of the free?

Or Land of the Slaves.. 

THX 1178's picture

Ever tried squeezing 100 ornary elephants through a keyhole?


Exit fees would seek to discourage retail investors from withdrawing funds, thereby making their claims less liquid and making a fire sale of the assets more unlikely.


You heard it here ladies and germs- the Fed is terrified of a fire sale. Now why would that be?

Manthong's picture

.. because they cannot control (gate) the outflow when the Ponzi gets widely understood. 

Thought Processor's picture




This is all so fucked up.

whotookmyalias's picture

The greed in me wants to chase some sort of return. The sane in me is happy to be mosting in (worthless US) cash and some Gold/Silver/Lead.


This is beyond fucked up.

Manthong's picture

Just wait until the first money market breaks the buck.

On second thought, that probably already happened, but since the CB’s can hit Ctrl-P anytime they want and will buy anything and everything at any monopoly money valuation, it does not matter that there are a stack of hotels to the ceiling on Park Place until the other kids are busted or just walk away from the game.

Thought Processor's picture



I think all of this really started when the first money market broke back in 2008.   It was then that the 'extreme' measures were put in action in order to prevent panic outflows.

They had to do something and they couldn't do nothing.


And it all went downhill from there, moral hazard being what it is.


It's all just a bunch of lies layered on top of each other now.  And the only way to get out of it is to blow it all up and start over.


The reset cometh.

Oracle 911's picture

It wont work and we all know that.

I think it will be still a fire sell even the retail investors ( MSM muppets) will sell it as crazy. And they will not give a damn about some fees, they will get rid of this toxic "asset" at whatever price fees or not.

Vampyroteuthis infernalis's picture

Exit fees would seek to discourage retail investors from withdrawing funds, thereby making their claims less liquid and making a fire sale of the assets more unlikely.

In other words it is a lose lose situation for the muppets.

CuttingEdge's picture

Maybe its to scare the Chinese into hanging on to that $2T or so they are holding...

Colonel Klink's picture

Bits of crypterm are beginning to form and foam at the corners of gh0atrider's mouth.  Can barely contain himself....

Fixed it for you goatfucker.  Crypto + sperm = crypterm

gh0atrider's picture

Within the cryptosphere every cryptsperm swims and is challenged for life, to impregnate the mind of a latent gh0at.  A new alt-coin?  Perhaps, yet unseen. 

Miffed Microbiologist's picture

May be he should put the bit coins in a MyRA and complete the circle of exuberant idiocy. But he'd probably prefer to swallow the other.


gh0atrider's picture

Hey fuckhead...  name one thing you have done online besides visit websites?

DaddyO's picture

Listen Ghoathead, is that any way to talk to a lady!

Yeah, I'm talking to you douche'bag.

Take you bitcoin schtick and stick it where the sun don't shine.

What a dweezle.


gh0atrider's picture

Your human sexes do not compute with gh0atrider!  Everyone save Satoshi is to be disrespected!

Miffed Microbiologist's picture

Dearest fonestar,

I will not descend to your level in either idiocy or foulness. I am a user of the internet, not a developer as you have accused me. I will never claim otherwise. My talents are based in the real world not in the virtual one. I have friends who have been in software architecture for more than 30 years and they have collectively called you a moron. We shall see if the assessment is true in the end.

When the time comes I hope you find a virtual microbiologist to see to your needs. You may be in luck and will take Bitcoin for their services.


gh0atrider's picture

gh0atrider knows aging software deveopers that don't get Bitcoin either, had one as an instructor.  They didn't get it at $50 and they don't get it at $500.  But he knows more young ones that do.

gh0atrider's picture

...and your division of "virtual" from "real" is simplistic and stupid.  Like most Zeroheads you don't seem to understand the difference between real and corporeal.

Miffed Microbiologist's picture

Simply semantics my love. Time will tell who the stupid one truly is. We just have to wait.

So a thought is real. But it has only value to the thinker unless developed into a form appreciated by others. This historically has been physical. That you have bypassed this critical step is the issue.


DaddyO's picture

Miffed, your grace and eloquence has exceeded my ability to deal with this pinhead, kudos my dear lady.


Miffed Microbiologist's picture

DaddyO, honestly I don't harbor animosity for Fonestar just pity. He is stuck. Obsessively fixated on one thing. And he will repeat his mantra over and over and be comforted. No one can help because he doesn't want to see. So when he calls me a fuckhead I just feel sorry for him not anger.

We have so much more than he could ever hope and experience he does not have. Who would you rather be in the end? Let's just try not to tease too greatly when his world comes down.

In friendship always,


gh0atrider's picture

No systems are tangible including Bitcoin (and your "gold backed") nonsense scam.  Trying to say systems are "not real" because you can't touch them is plain stupid.

Miffed Microbiologist's picture

I never said bit coin was not real. Thoughts are real as are concepts. Dreams are real. However, they hold no long term value unless tied to something physical others can appreciate.

When cash becomes virtual central control will be possible. Even the very simple will see the danger in this and this is why so many here fear it. You offer something that has the same risk and will never be fully secure.


MontgomeryScott's picture


No, I won't be so kind, you ignorant, shitheaded, puling, child-man NWO minion.

Your reliance on the electric grid to transact monetary trades is as weak as the grid itself. Before Tesla, there WAS NO ELECTRICITY, you stupid little shit. TRY to tell everyone that a hundred years of electricity will replace 6,000 years of honest trade. GO AHEAD, you NWO SHILL.

Hey, what about those EMP's, huh? They COULDN'T WIPE OUT the grid, now; could they? NAW. It could NEVER HAPPEN, and anyone who says this is a tin-foil-hat-wearing conspiracy theorist.





Do you need MOAR sources, or are you getting the idea, you sheep-dipped little TWAT?

WELL, as long as I have my RFID CHIP implanted in my forehead or my right hand, my SHITCOINS will NEVER 'permanately disappear', you are saying, AREN'T YOU, gOatfucker?

Sorry, I am not quite as restrained as some of the others on the Zero Hedge blogs; regarding fuckstains who interject bullshit memes.

It's all ones and fucking zeroes, you know. It's in your hand, or it isn't in your hand (in which case it DOES NOT FUCKING EXIST).

Excuse me, while I go and finish playing my game of 'World Of Dipshits', in Momma's basement. OH, SHIT! TOO LATE! Momma's turning off the power.../


(Mommy, can I have some clothes, please? It's kind of cold down here in the dark.)


Miffed Microbiologist's picture

Preach it Brother! The sad thing is neither subtle or in your face will work here. He must know to be viable, Bitcoin must be accepted by the public and we ain't buying it. It is doomed to fail. Too bad the fuckheads have more sense then he realizes.


gh0atrider's picture

Oh no!  The EMPs are coming any day now! (in the next five hundred years).

And if that fails...

The one-world government that owns every power station on Earth is going to turn them all off!!


You fucking mental reject!

sleigher's picture

Ghoatstar, we just missed a big CME last week dude.  I am not saying the end is nigh, but we really just don't know.  Could happen any day or 500 years from now.

G-R-U-N-T's picture

As the Fed continues to try to control the economy and with it society, it is only spring boarding us into economic disaster and with it civil unrest! The business cycle will always prevail despite the horrible decisions coming from a detached self absorbed entity. Watch the Fed blame everyone but themselves.

ArkansasAngie's picture

Liquidity on illiquid assets.  Sounds lioke the funds have a fundamental flaw.  Don't buy the funds.  They aren't riskless.

Keeps your assets closer to home.

Buckaroo Banzai's picture

Holy fuck. It's the Degree "All-in" moment for STAWKS.

fonzannoon's picture

I call bullshit on this whole thing. The only reason you announce that there will be exit fees is to purposefully try to get capital to flee...and hopefully into SPY. Everyone can see the nirpish future and 2.60% looks like a fat juicy steak right now. They are doing this not to prevent money from fleeing bawnds...rather they are hoping and praying money moves out of bawnds.

Dr. Engali's picture

Agreed. The topic of 401k and IRA confiscation comes up a lot in conversations and yet that money won't move either. Clients don't want to see their portfolios cut in half by taxes if they withdraw everything to avoid it, and even if they did they have no idea what to do with the "money" so they just stay put.

NotApplicable's picture

I have a 401k that used to sit entirely in a money market fund. Then I got a letter a year or so ago stating the fund was being shut down and my only "cash equivalent" option was to put it into a bond fund. Now, it too shall no longer be a "safe haven."

Gee, it's like they're trying to corral me in an effort so that I'm easier to slaughter.

Sorry, but there's no way I'm committing eventual suicide by moving into stocks.


fonzannoon's picture

CNBC has the Traveler's CEO on right now. He has blah blah blah billions in AUM. He says he is mostly out of stocks and owns a shit ton of bawnds. The interviewer is all "Why won't you just invest in the damn S&P!!!". 

I don't that guy is too concerned about exit fees from his bawnds.

NoDebt's picture

I noticed the word "retail" featured prominently in the article.

Manthong's picture

if the money is more than a year or two of wages.. GET THE F OUT.

it is free collateral for the banks and wage slaves are grease for the wheels of kleptocracy.



SilverRhino's picture

If you still have a 401K you are effectively committing suicide anyway.

PM's ... they cant hold them down forever and they sure as fuck cant keep this ponzi going much longer.

Kirk2NCC1701's picture

Nor can they track it, or seize it as litigation - vulnerable assets.
Which, to many people is even more important.

MontgomeryScott's picture

Roosevelt, 1933, emergency declaration, Gold seizure from the citizens of the republic.


Nick Jihad's picture

Which is why it is very important never to take your gold with you on boating trips.

MontgomeryScott's picture

The Tribe rules.

OOPS, I mean 'The Mob Rules' (if you listen to fools).

GEE, it's like they're trying to corral you. YA THINK?

A little Black Sabbath/ Heavy Metal Noise for your insightful analysis:


Those who are most easily enslaved truly believe that they are free.

"...my only "cash equivalent" option was to put it into a bond fund." GEE, it sounds like you were corraled a long time ago.

I guess you CAN 'grow' your 'portfolio'. I tried planting some currency in the back yard, as a learning moment for my children (along with some corn and tomatoes). Every day, I had them water the rows, and I weeded them, for about 6 months. Can you guess which ones actually GREW?


The center does not hold. The FED is collapsing. As the FED goes, so goes the shadow-economy. Yeats was right.

Fed Prepares For Bond-Fund Runs, Looking At Imposing "Exit Fee" Gates

I'm going long on lead, antimony, and brass. Arable land; potable water, clothing, shelter, and food supplies are also quite high on the list.


What's a '401(K)'? Is that some type of 'retirement fund', like IRA's or KEOGH's used to be? ALL HAIL the IRS!