Last month we learned that some of the country's largest fund managers (including Vanguard) have been busy lining up billions in emergency liquidity lines with banks to protect them in the event rising rates, shale defaults, or some unexpected exogenous shock leads to a sudden exodus from the high yield and other more esoteric ETFs that have become popular among today's yield-starved investors.

Essentially, these liquidity lines would allow fund managers to cash out investors with borrowed money, while holding onto the underlying assets rather than selling into an illiquid secondary market where dealers are no longer willing to hold inventory, and where a wave of liquidations could become self-fulfilling.

The problem with this strategy is that it's yet another example of delaying the inevitable. That is, if fund managers are forced to tap these liquidity lines it likely means investors have found a reason to sell en masse and if that reason turns out to be something that permanently impairs the value of the underlying bonds (as opposed to a transitory, irrational panic) then all they're doing by borrowing to meet redemptions is employing leverage to stave off the recognition of losses, which is ironically the same thing (in principle anyway) that the companies whose bonds they're holding have done to stay in business.