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Report
Liquidity Transformation Risks in U.S. Bank Loan and High-Yield Mutual Funds: a 2026 Update
We update the mutual fund (MF) liquidity monitoring metrics introduced by Anadu and Cai (2019). We show that the median liquidity ratio for bank loan (BL) MFs has remained relatively stable in recent years, while the median illiquidity ratio is near levels last observed during the pandemic. This dynamic suggests increased liquidity transformation risk, on balance. To be sure, our measure captures only one dimension of illiquidity, rather than the full illiquidity profile of an MF’s portfolio.
Discussion Paper
Liquidity Transformation Risks in U.S. Bank Loan and High-Yield Mutual Funds: A 2026 Update
Mutual funds (MFs) and other open-ended collective investment funds engage in liquidity transformation—they offer investors daily redemptions while investing in assets that may take longer than a day to sell without significant price impact. This activity is particularly salient for corporate debt funds, where large investor redemptions during stress periods could result in fire sales that adversely affect underlying markets (see, e.g., Goldstein, Jiang, and Ng, 2017; Chernenko and Sunderam, 2020; Falato, Goldstein, and Hortaçsu, 2021; Federal Reserve Board, 2025).
Discussion Paper
The Rise of Semiliquid Funds for Retail Investors
Investment funds differ in how investors can access their capital. The redemption rules governing how and when investors can withdraw have evolved endogenously in response to shifting investor demand and regulatory constraints. While the immediate liquidity of open-end mutual funds and exchange-traded funds has long dominated the retail market, the landscape has been evolving over time.