Corporate Bond Liquidity During the COVID-19 Crisis

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

No 15231, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 increased dramatically at the height of the sell-off, forcing customers to shift towards slower, agency trades. Exploiting eligibility requirements, we show that the Federal Reserve’s corporate credit facilities 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.

Keywords: Corporate bonds; Liquidity; Intermediation; Smccf; Covid-19 (search for similar items in EconPapers)
JEL-codes: G12 G14 G21 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-cfn and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (46)

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Related works:
Journal Article: Corporate Bond Liquidity during the COVID-19 Crisis (2021)
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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