Intermediary Balance Sheet Constraints, Bond Mutual Funds’ Strategies, and Bond Returns

Mariassunta Giannetti, Jotikasthira Chotibhak, Andreas Rapp and Martin Waibel

No 19250, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We show that after the introduction of the leverage ratio constraints on bank-affiliated dealers, bond mutual funds have engaged in more liquidity provision in investment-grade corporate bonds and that the performance of funds with liquidity-supplying strategies has benefited. Not only have regulations transferred profits associated with liquidity provision in the corporate bond market to mutual funds, but the liquidity and returns of investment-grade corporate bonds have become more exposed to redemptions from the bond mutual fund industry, suggesting that the regulations have made investment-grade corporate bonds more volatile. Accordingly, we observe that investment-grade corporate bonds that are more exposed to leverage ratio constraints experienced a more severe deterioration in liquidity and returns at the onset of the COVID-19 pandemic.

Keywords: Liquidity (search for similar items in EconPapers)
JEL-codes: G12 G23 G28 (search for similar items in EconPapers)
Date: 2024-07
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP19250 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

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:cpr:ceprdp:19250

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP19250

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().