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Discussion Paper

Redemption Risk of Bond Mutual Funds and Dealer Positioning


Abstract: Market participants have recently voiced concerns that bond markets seem to become illiquid precisely when they want to sell bonds. Some possible reasons for a decline in corporate bond market liquidity in times of stress include the increasing share of corporate bond ownership by mutual funds and the reduced share of corporate bond ownership by dealers. In this post, we examine the potential effects of outflows from bond mutual funds and the role of dealers? positioning in corporate bonds.

Keywords: liquidity; dealers; mutual funds;

JEL Classification: G1; G2;

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Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2015-10-08

Number: 20151008