Bond Funds Warned on ‘Government’ Label

Securities regulators have told mutual fund companies to disclose more clearly when their “U.S. government” bond funds invest heavily in mortgage- related bonds, such as those from Freddie Mac and Fannie Mae.

The Securities and Exchange Commission called for the added disclosure after congressional criticism that investors may be confused by titles and assume that government-bond funds are 100% invested in securities backed by the Treasury.

In a letter to the Investment Company Institute, the funds’ trade group, the SEC urged the industry to clear up any confusion when funds use “federal” or “government” in their names.

Fund prospectuses should clearly distinguish between securities that are backed by the Treasury and others, such as bonds from federally chartered mortgage firms, that aren’t.

From Bloomberg News