Financial Fragility in the COVID-19 Crisis: The Case of Investment Funds in Corporate Bond Markets

Abstract Using daily microdata, we document major outflows in corporate-bond funds during the COVID-19 crisis. Large outflows were sustained over weeks and most severe for funds with illiquid assets, vulnerable to fire sales, and exposed to sectors hurt by the crisis. By providing a liquidity backstop for their bond holdings, the Federal Reserve bond purchase program helped to reverse outflows especially for the most fragile funds. In turn, the program had spillover effects on primary market issuance and peer funds. The evidence points to a “bond-fund fragility channel” whereby the Fed liquidity backstop transmits to the real economy via funds.

• Publication year

  2020

• Venue

  Social Science Research Network

• Publication date

  2020-07-01

• Fields of study

  Business, Economics

• Identifiers
  DOI 10.2139/ssrn.3656665
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

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