Mutual funds run by companies including BlackRock Inc. and T. Rowe Price Group Inc. have begun buying bonds through a $1 trillion government lending programme after a June regulatory ruling cleared the way.
T. Rowe Price and BlackRock, the world’s second-biggest bond manager, began using financing provided by the Federal Reserve in July and OppenheimerFunds Inc. started to do so last month, officials at the companies said. Mutual funds have disclosed that they might invest through the government programme in regulatory filings over the past two months.
The funds may be able to reap returns of 15 percent or more on commercial mortgage-backed securities while limiting losses by passing most of the credit risk to the central bank, according to Scott Buchta, head of investment strategy at Guggenheim Securities LLC in Chicago.
“This is one of those opportunities that, as an investor, we have to take advantage of,” said Krishna Memani, who heads the investment-grade fixed-income team at OppenheimerFunds, a New York-based unit of Massachusetts Mutual Life Insurance Co. in Springfield. “The key concern is what is the maximum amount of potential loss, and that is limited to our equity” investment under the program.
Managers are buying the debt after fixed-income funds attracted inflows of $254.6 billion in the first nine months of this year, 18 times as much as stock funds, according to Chicago-based Morningstar Inc.
The Term Asset-Backed Securities Loan Facility, or TALF, offers low-cost financing for up to five years to buy AAA-rated bonds backed by consumer and business loans as well as commercial mortgages.