"Essentially, mutual fund XYZ is not all that different than fund ABC. They get money from the same investors base. They've followed the same strategy and have the same constraints. They're not going to be thinking about the world very differently," said Antczak.
UBS rate strategists this week reissued a study they did in early May, which examined what the point of pain might be for retail investors in those funds.
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"If we have a selloff exceeding 60 basis points in the single A corporate yield in a short period of time—and we are not quite there yet but close to it—that would correspond to something like 2.55/2.60 on the 10-year Treasury," said rate strategist Boris Rjavinski. "If we get to that point, that has historically triggered outflows ... we don't say it's a hard rule. In the past what followed was strong outflows."
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Rjavinksi said that is not a set "red line" but just guidance based on past investor behavior.
"Given that markets are sort of thin, that could sort of contribute to a further wave of selling," he said, adding yields could then move another leg higher.
"We call it a negative feedback loop," said Rjavinski. "Fixed income markets are not as liquid as they used to be. You get a first wave of selling that pushes prices lower, pushes yields higher and triggers more selling, and for a while that could feed on itself. We believe that's exactly what happened for several weeks back in 2013 during the taper tantrum."
Bond experts say more securities in the corporate bond market have become less liquid, and there is more trading by "appointment" on Wall Street. So, when mutual funds sell, they could cause bigger price swings as they try to unload holdings.
"I would say household names are more likely prone to this," as they are most widely owned by popular bond funds, Rjavinski said. "Very large companies with high credit ratings—chances are a lot of those are owned by mutual funds and ETFs."
Antczak said the trades should ultimately not have a problem clearing, but prices may take a take a potentially bigger hit because of the liquidity issue, which he says is also caused by the concentration of holdings, not just the changes on Wall Street.
"Liquidity is modest, and everybody is trying to do the same thing," said Antczak. "I would argue everything is vulnerable. I think there is a mentality when you suffer a shock that the most liquid paper is the first out the door."