Corporate Bond Liquidity during the COVID-19 Crisis

The day coronavirus nearly broke the financial markets

Mahyar Kargar, Benjamin Lester, David Lindsay, Shuo Liu, Pierre-Olivier Weill and Diego Zúñiga

The Review of Financial Studies, 2021, vol. 34, issue 11, 5352-5401

Abstract: We study liquidity conditions in the corporate bond market during the COVID-19 pandemic. We document that the cost of trading immediately via risky-principal trades dramatically increased at the height of the sell-off, forcing customers to shift toward slower agency trades. Exploiting eligibility requirements, we show that the Federal Reserve’s corporate credit facilities have had a positive effect on market liquidity. A structural estimation reveals that customers’ willingness to pay for immediacy increased by about 200 bps per dollar of transaction, but quickly subsided after the Fed announced its interventions. Dealers’ marginal cost also increased substantially but did not fully subside.

JEL-codes: G12 G14 G21 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (62)

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Working Paper: Corporate Bond Liquidity During the COVID-19 Crisis (2020)
Working Paper: Corporate Bond Liquidity During the COVID-19 Crisis (2020)
Working Paper: Corporate Bond Liquidity During the COVID-19 Crisis (2020)
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