The Behavior of Fixed-income Funds during COVID-19 Market Turmoil
Global Financial Stability Notes, December 14, 2020
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- The Behavior of Fixed-income Funds during COVID-19 Market Turmoil
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Bibliographic details
- Authors: Frank Hespeler, Felix Suntheim
- Published: December 14, 2020
- Series: Global Financial Stability Notes
- DOI: https://doi.org/10.5089/9781513563695.065
Overview
- Authors: Frank Hespeler, Felix Suntheim
- Publication date: December 14, 2020
- Series: Global Financial Stability Notes No 2020/002
- Issue: 002
- Volume: 2020
- Pages: 13
- DOI: https://doi.org/10.5089/9781513563695.065
- ISBN: 9781513563695
- ISSN: 2791-3112
Key findings on fund behavior and market dynamics
- Open-end mutual funds experienced stress during the March COVID-19 stress episode, with a focus on global fixed-income funds.
- Funds faced a short period of intense withdrawals amid increased valuation uncertainty.
- Market liquidity of fund holdings deteriorated substantially during the episode.
- To meet redemptions, afflicted funds predominantly shed liquid assets first, for example:
- cash,
- cash equivalents,
- US Treasury securities.
- Forced asset sales amplified price pressures in markets and contributed to liquidity falling across fixed-income markets.
- The drop in market liquidity, together with general stress in financial markets, may have increased investor sensitivity to poor portfolio performance and encouraged further withdrawals.
- Liquidity and redemption stress subsided only after central banks intervened, directly and indirectly supporting asset managers.
- The March episode validated financial-stability concerns about liquidity vulnerabilities in the fund industry and calls for further action to address them.
Subjects and keywords (as listed)
- Subjects: Cash accounting, Corporate bonds, COVID-19, Currencies, Economic and Financial Topics, Flow of funds, Liquidity, Sovereign bonds, Treasury bills and bonds
- Keywords: AN, cash, financial stability, fixed-income fund, fixed-income funds, fund flow, liquidity condition, low-liquidity assets, portfolio composition, stress scenario exercise
Source: Global Financial Stability Notes — "The Behavior of Fixed-income Funds during COVID-19 Market Turmoil" by Frank Hespeler and Felix Suntheim (December 14, 2020).
Content in this bundle
- The Behavior of Fixed-income Funds during COVID-19 Market Turmoil; December 14, 2020