U.S. fund firms are taking extra measures to make sure they don’t get stuck holding hard-to-sell bonds in the event that fixed income markets see a massive race to the exits when interest rates start to rise.

    Over the past few months a growing number of asset managers, including Neuberger Berman, Natixis Global Management and T. Rowe Price have been testing their funds against various market scenarios, building cushions of cash, shorter-duration bonds and other liquid securities, and regularly discussing risks with their boards.

    The concern is this: As the U.S. Federal Reserve begins to raise rates, which many expect will begin to happen next year, investors will rush to sell bonds as their value drops in a rising interest rate environment.

    “I look around and ask, ‘at the end of the day how easy would it be to sell what I own?’ and the answer is it is much more challenging,” said Jason Brady, a fixed income portfolio manager at Sante Fe, New Mexico-based Thornburg Investment Management, which has US$70 billion in assets under management, US$17 billion of which is in fixed income. (SD-Agencies)