Anatomy of a liquidity crisis: Corporate bonds in the COVID-19 crisis.
J financ econ
; 142(1): 46-68, 2021 Oct.
Article
in English
| MEDLINE | ID: covidwho-1379139
ABSTRACT
We examine the microstructure of liquidity provision in the COVID-19 corporate bond liquidity crisis. During the two weeks leading up to Federal Reserve System interventions, volume shifted to liquid securities, transaction costs soared, trade-size pricing inverted, and dealers, particularly non-primary dealers, shifted from buying to selling, causing dealers' inventories to plummet. Liquidity provisions in electronic customer-to-customer trading increased, though at prohibitively high costs. By improving dealer funding conditions and providing a liquidity backstop, the Primary Dealer Credit Facility and the Secondary Market Corporate Credit Facility (SMCCF) stabilized trading conditions. Most of the impact of SMCCF on bond liquidity seems to have materialized following its announcement. We argue that the Federal Reserve's actions reflect a new role as market maker of last resort.
Full text:
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International databases
Database:
MEDLINE
Language:
English
Journal:
J financ econ
Year:
2021
Document Type:
Article
Affiliation country:
J.jfineco.2021.05.052
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