Mutual funds and exchange-traded funds that track the returns of indexes of relatively illiquid assets have mushroomed in size. Examples include funds tracking the return on leveraged loans, credit default swaps, and other less liquid assets. These funds offer daily or even intraday liquidity to investors while holding assets that are hard to sell immediately, thus making the funds vulnerable to liquidity risk.
Reforms proposed in the United States, Europe, and elsewhere are widely expected to encourage pension funds to be more fully funded and to take steps to better match the duration of their assets and liabilities. Together with the increased need of aging populations in the industrial countries to prepare for retirement, these changes may have increased the demand for longer-maturity securities.