Corporate Bond Liquidity During the COVID-19 Crisis

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

No 27355, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E5 E58 E65 G0 G01 G12 G21 G23 (search for similar items in EconPapers)
Date: 2020-06
New Economics Papers: this item is included in nep-cfn, nep-fmk and nep-mac
Note: AP CF EFG ME
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Citations: View citations in EconPapers (48)

Published as Mahyar Kargar & Benjamin Lester & David Lindsay & Shuo Liu & Pierre-Olivier Weill & Diego Zúñiga & Itay Goldstein, 2021. "Corporate Bond Liquidity during the COVID-19 Crisis," The Review of Financial Studies, vol 34(11), pages 5352-5401.

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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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