Multi-Sector Bond Funds: New Evidence on Global and Domestic Drivers and Effectiveness of Capital Account Measures

Rogelio Mercado and Luca Sanfilippo
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Luca Sanfilippo: International Finance Corporation

Working Papers from South East Asian Central Banks (SEACEN) Research and Training Centre

Abstract: Portfolio bond flows to emerging and developing market economies (EDMEs) from multi-sector bond funds (MSBFs) are volatile and highly concentrated, rendering them potentially risky. This paper uses a recent MSBF flows dataset to shed more light on capital flow push and pull factors and to provide new evidence on the effectiveness of capital account tightening measures in reducing volatile MSBF flows. The results show: (i) higher U.S. monetary policy rates and global risk aversion significantly reduce aggregate MSBF flows and those denominated in hard currencies, while stronger global commodity price growth and global liquidity significantly increase them; (ii) global and domestic GDP growth (surprisingly) have a countercyclical impact on MSBF flows during our sample period, and, importantly, (iii) capital account tightening measures that target fixed income investment funds are effective in reducing MSBF flows to EDMEs, especially during periods of increased stress. Together, these results provide new insights into multi-sector bond funds and the importance of designing and implementing targeted capital control measures.

Keywords: multi-sector bond funds; portfolio bond flows; and capital controls (search for similar items in EconPapers)
JEL-codes: F21 F38 F41 G23 (search for similar items in EconPapers)
Date: 2024-04
New Economics Papers: this item is included in nep-ifn, nep-opm and nep-sea
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https://www.seacen.org/publications/RePEc/702001-100492-PDF.pdf (application/pdf)

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Working Paper: Multi-Sector Bond Funds: New Evidence on Global and Domestic Drivers and Effectiveness of Capital Account Measures (2024)
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