Multi-Sector Bond Funds in Emerging Markets—Easy Come, Easy Go

Global Financial Stability Report April 2023

“…12 In addition, liquidity mismatches in emerging market 12 Further pressure on outflows can be also related to non-benchmarked investors and multisector bond funds in particular. These unconstrained funds can be a source of spillovers to emerging markets and potentially exert a sizable effect on cross-border flows (Cortes and Sanfilippo 2021).…”

India’s Financial System

“…This trend is consistent with developments in global capital flows; see, for example, the Bank for International Settlements (BIS) 2021.6 The taper tantrum refers to market movements set off after the US Federal Reserve said it would begin "tapering" quantitative easing.7 In the first quarter of 2020, India-among a few selected emerging markets including Brazilsuffered the brunt of the portfolio rebalancing by multisector bond funds. In the first half of 2020, the share of such funds in foreign holdings of government debt dropped from above 10 percent to just above zero(Cortes and Sanfilippo 2021).8 Limited market liquidity is an amplifier of market pressures during stress and may impair monetary policy transmission in some cases.©International Monetary Fund. Not for Redistribution…”