SEC said to propose that mutual funds disclose risk of rate rise

(Bloomberg) — The U.S. Securities and Exchange Commission is set to propose a requirement that mutual-fund companies report how vulnerable their bond portfolios are to interest-rate changes, two people familiar with the matter said.

The proposal, which the five-member commission is scheduled to vote on Wednesday, is among the agency’s first moves to address regulators’ concerns that many bond funds could face steep losses if the Federal Reserve’s first interest-rate hike in almost seven years forces them to sell assets quickly.

Under the proposal, mutual funds would have to submit monthly reports to the SEC, including new information about their derivatives holdings, said the people, who asked not to be named because the proposal isn’t yet public. The reports would also include a metric known as duration that shows how bonds would perform if rates were to rise by 1 percentage point.

“Duration would be extraordinarily useful both to the commission and investors to help them understand the interest- rate sensitivity of a bond portfolio,” said Robert Plaze, a partner at Stroock & Stroock & Lavan who previously led mutual fund regulation at the SEC. “It’s what they use inside the asset managers to evaluate their own portfolios.”