Investors as a Liquidity Backstop in Corporate Bond Markets

Carole Comerton-Forde, Billy Ford, Thierry Foucault and Simon Jurkatis
Additional contact information
Thierry Foucault: HEC Paris - Ecole des Hautes Etudes Commerciales

Working Papers from HAL

Abstract: Investors act as a liquidity back-stop in the corporate bond market. By providing liquidity, investors help ease dealers' balance sheet constraints, especially during market stress. During the March 2020 Dash-for-Cash, in bonds where investors stopped providing liquidity, transaction costs rose by 38%. We find the composition of types of liquidity providers - rather than just their presence - shapes trading costs. Dealers relying on flexible-mandate investors, such as hedge funds, are more resilient to liquidity shocks. Dealers offer discounts to investors for past liquidity services to maintain liquidity provider networks. These discounts represent two-thirds of relationship discounts.

Keywords: Bond Markets; Liquidity; Clients-sourced liquidity; Balance sheet cost (search for similar items in EconPapers)
Date: 2025-05-07
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05187235

DOI: 10.2139/ssrn.5229934

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().