If you have money in bond funds, be warned!-------A Horror-Show Called “Fed-Gate” May Be Coming To Your Bond Fund Soon

A Horror-Show Called “Fed-Gate” May Be Coming To Your Bond Fund Soon | David Stockman's Contra Corner:
"The Financial Times is not exactly a rumor mill—-so its recent headline amounts to a thunderbolt:
“Fed Looks At Exit Fees On Bond Funds”

And so the shoes begin to fall.
Owing to the Fed’s brutal financial repression since December 2008 (i.e. zero yield on short-term funds), there has been massive scramble for yield that has driven trillions into corporate and high yield bond funds.
What this means is that liquid funds which would have normally been parked in bank deposits or money market funds have been artificially displaced.
That is,  they have been chased by the dictates of the monetary politburo into far more illiquid and risky investment vehicles owing to zero yields in their preferred financial venues.
But now it is dawning on at least some of the more market savvy occupants of the Eccles Building that they have created a monumental financial log-jam waiting to happen. 
In their jargon, the migration of trillions into bond funds since the financial crisis has resulted in a sweeping “maturity transformation”.
As former governor Jeremy Stein succinctly put it,
“It may be the essence of shadow banking is … giving people a liquid claim on illiquid assets.”
What Stein means is that the traditional money markets existed for a reason—even if returns were inferior to what could be obtained in longer duration fixed income securities or investments with equity-like features such as junk bonds.
Corporations and individuals who invested in money market instruments, including bank CDs, were willing to absorb the yield penalty in return for the assurance of absolute daily liquidity that the funds in question required.
But zero return is not a market driven liquidity penalty; it is an arbitrary prohibition imposed on the market by the monetary politburo.
So now we have a giant anomaly.
Trillions of daily liquidity demanding investments are potentially stuck in bond funds which could not provide it during a crisis. 
In effect, any attempt by bond funds managers to meet a surge of redemptions calls would make the crisis surrounding the Reserve Prime Fund’s “breaking the buck” in September 2008 seem like a Sunday School picnic."