Financial Fragility in Open-Ended Mutual Funds: The Role of Liquidity Management Tools

Collateral Pledgeability and Asset Manager Portfolio Choices During Redemption Waves

“…Figure 2 shows the impact on credit spreads for an index of EA corporate bonds. Using data for Irish investment funds, Dunne et al (2023) found that funds applying price-based liquidity management tools (such as redemption fees and anti-dilution levies) experienced smaller outflows; bonds held to a larger extent by such funds in turn experienced smaller yield changes. Using euro area data on repo transactions, Breckenfelder and Hoerova (2023) found that banks reduced repo financing to funds during the same period, increasing the need for selling bonds to finance redemptions, although the tightening was smaller for bonds eligible as Eurosystem collateral.…”