IMF Working Papers

Risks and Vulnerabilities in the U.S. Bond Mutual Fund Industry

By Antoine Bouveret, Jie Yu

April 29, 2021

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Antoine Bouveret, and Jie Yu. Risks and Vulnerabilities in the U.S. Bond Mutual Fund Industry, (USA: International Monetary Fund, 2021) accessed September 20, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper assesses liquidity risk for the United States (U.S.) bond mutual funds industry and performs a range of analyses to identify which fund categories are more vulnerable to distress than others, and how sales from funds can impact financial stability. We develop a new measure to identify vulnerable categories based on expected outflows labelled ‘Flows in Distress’. Overall, most U.S. mutual funds are resilient yet high yield (HY) and loan funds would face a liquidity shortfall when faced with severe redemption shocks. Combined sales from funds can have a sizeable price impact. Finally, our contagion analysis using data on fund flows and returns shows that Investment Grade (IG) corporate bonds funds, municipal bond funds and government bond funds are more likely to spread distress to other fund categories than HY, EM and loan funds. When the first type of funds experiences stress, other funds categories are likely to experience stress as well.

Subject: Bonds, Corporate bonds, Financial institutions, Municipal bonds, Mutual funds, Sovereign bonds

Keywords: B. liquidity stress test, Bonds, Corporate bonds, Fund category, Funds category, Global, Liquidity shortfall, Loan fund, Municipal bonds, Mutual fund industry, Mutual funds, Sovereign bonds

Publication Details

  • Pages:

    48

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2021/109

  • Stock No:

    WPIEA2021109

  • ISBN:

    9781513582320

  • ISSN:

    1018-5941

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