NBER

Shuo Liu

Department of Economics
UCLA
8283 Bunche Hall
Los Angeles, CA 90095
USA

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: UCLA

NBER Working Papers and Publications

June 2020Corporate Bond Liquidity During the COVID-19 Crisis
with Mahyar Kargar, Benjamin Lester, David Lindsay, Pierre-Olivier Weill, Diego Zúñiga: w27355
We study liquidity conditions in the corporate bond market since the onset of the COVID-19 pandemic. We find that in mid-March 2020, as selling pressure surged, dealers were wary of accumulating inventory on their balance sheets, perhaps out of concern for violating regulatory requirements. As a result, the cost to investors of trading immediately with a dealer surged. A portion of transactions migrated to a slower, less costly process wherein dealers arranged for trades directly between customers without using their own balance sheet space. Interventions by the Federal Reserve appear to have relaxed balance sheet constraints: soon after they were announced, dealers began absorbing inventory, bid-ask spreads declined, and market liquidity started to improve. Interestingly, liquidity condit...

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