A Perfect Storm Brews for Bond Funds

Post-financial-crisis regulation has sharply reduced investors' freedom to buy and sell securities without affecting prices, according to many (many) market participants. Overheating in the bond market has exacerbated the problem, according to many others.

That's caused some to worry about the ability of fixed-income funds to withstand a big sell-off in bonds. Many fund managers have been increasing their credit lines to protect themselves against the possibility of a wave of redemptions by nervous investors. Bloomberg reported last week that Aberdeen Asset Management has arranged $500 million in credit lines to cushion the blow of a potential bond sell-off. BlackRock, Vanguard, Goldman Sachs Asset Management, Guggenheim Partners, and Eaton Vance are also said to have made extra borrowing arrangements with banks in recent months.