Search Results
Discussion Paper
Private Credit: Characteristics and Risks
Private credit or private debt investments are debt-like, non-publicly traded instruments provided by non-bank entities, such as private credit funds or business development companies (BDCs), to fund private businesses. Private credit is typically extended to middle-market firms with annual revenues between $10 million and $1 billion, but has grown rapidly in recent years to fund larger companies that were traditionally funded by leveraged loans.
Report
Liquidity Transformation Risks in U.S. Bank Loan and High-Yield Mutual Funds
In this note, we examine the liquidity profiles of a sample of bank loan and high-yield open-end mutual funds. Among other things, we find that the ten largest bank loan mutual funds have increased their holdings of the hardest-to-value, generally most illiquid assets over the past decade.
Discussion Paper
Liquidity Transformation Risks in U.S. Bank Loan and High-Yield Mutual Funds
Net assets in open-end (non-money market) mutual funds (MFs) have increased notably over the past decades.
Working Paper
The impact of macroeconomic announcements on real time foreign exchange rates in emerging markets
This paper utilizes a unique high-frequency database to measure how exchange rates in nine emerging markets react to macroeconomic news in the U.S. and domestic economies from 2000 to 2006. We find that major U.S. macroeconomic news have a strong impact on the returns and volatilities of emerging market exchange rates, but many domestic news do not. Emerging market currencies have become more sensitive to U.S. news in recent years. We also find that market sentiment could sway the impact of news on these currencies systematically, as good (bad) news seems to matter more when optimism ...
Journal Article
Improving the measurement of cross-border securities holdings: the Treasury International Capital SLT
In the wake of the financial crisis, growing interest in improving the measurement of cross-border securities positions and flows spurred the introduction of a new Treasury International Capital (TIC) reporting form, the TIC Security Long Term (SLT). This article reviews the existing structure of TIC cross-border position and flow data, the benefits that the new SLT can provide, and the incoming information from the first two reporting months of SLT data, September and December 2011. While some patterns and characteristics of the SLT data will become clear only after more data have ...
Working Paper
Has international financial co-movement changed? Emerging markets in the 2007-2009 financial crisis
Emerging market (EM) assets have historically been regarded as inherently risky and particularly vulnerable to international shocks that result in a general increase in investor risk perceptions. In this paper, we assess the ongoing relevance of this view by examining the linkages between EM and non-EM stock and bond markets in the past two decades, with a focus on how these relationships played out during the global financial crisis of 2007-2009. We evaluate how these linkages have evolved over the period 1992-2009, through statistical tests of whether the volatility of EM financial markets ...
Discussion Paper
Household and Business Debt: A Fire-Sale Risk Analysis
As of year-end 2019, nonfinancial business debt (BD) and household debt (HD) as a share of GDP were at similar levels of around 74 percent, and yet Federal Reserve Financial Stability Report suggested that BD posed greater risks to financial stability than HD. Since the onset of the pandemic, the size of aggregate BD has increased considerably as a result of roughly $1.25 trillion of new issuance, while HD has grown by less than $100 billion. This note looks through the lens of fire-sale risks to show why nonfinancial BD is more concerning for financial stability than the HD.
Working Paper
International diversification at home and abroad
We analyze foreigners' and domestic institutional investors' holdings of U.S. equities and find common preferences for large firms and firms that are diversified internationally. The domestic preference for internationally diversified firms implies that investors might obtain substantial international diversification by investing at home. Using an international factor model, we show that exposure to foreign equity markets is indeed greater for domestic firms that are more diversified internationally, suggesting that at least some of the home-grown foreign exposure translates into ...
Journal Article
Improving the measurement of cross-border securities holdings: the Treasury International Capital SLT
In the wake of the financial crisis, growing interest in improving the measurement of cross-border securities positions and flows spurred the introduction of a new Treasury International Capital (TIC) reporting form, the TIC Security Long Term (SLT). This article reviews the existing structure of TIC cross-border position and flow data, the benefits that the new SLT can provide, and the incoming information from the first two reporting months of SLT data, September and December 2011. While some patterns and characteristics of the SLT data will become clear only after more data have ...
Working Paper
Sovereign CDS and bond pricing dynamics in emerging markets: does the cheapest-to-deliver option matter?
We examine the relationships between credit default swap (CDS) premiums and bond yield spreads for nine emerging market sovereign borrowers. We find that these two measures of credit risk deviate considerably in the short run, due to factors such as liquidity and contract specifications, but we estimate a stable long-term equilibrium relationship for most countries. In particular, CDS premiums tend to move more than one-for-one with yield spreads, which we show is broadly consistent with the presence of a significant "cheapest-to-deliver" (CTD) option. In addition, we find a variety of ...