Investors as a Liquidity Backstop in Corporate Bond Markets

Carole Comerton-Forde, Billy Ford, Thierry Foucault () and Simon Jurkatis
Additional contact information
Carole Comerton-Forde: University of Melbourne - Department of Finance; Centre for Economic Policy Research (CEPR)
Billy Ford: Independent
Thierry Foucault: HEC Paris
Simon Jurkatis: Bank of England

No 1564, HEC Research Papers Series from HEC Paris

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)
JEL-codes: D40 G10 (search for similar items in EconPapers)
Pages: 61 pages
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:ebg:heccah:1564

DOI: 10.2139/ssrn.5229934

Access Statistics for this paper

More papers in HEC Research Papers Series from HEC Paris HEC Paris, 1 Rue de la Libération, 78350 Jouy-en-Josas, France. Contact information at EDIRC.
Bibliographic data for series maintained by Antoine Haldemann ().