European Business Schools Librarian's Group
HEC Research Papers Series,
HEC Paris
No 1564: Investors as a Liquidity Backstop in Corporate Bond Markets
Carole Comerton-Forde, Billy Ford, Thierry Foucault () and Simon Jurkatis
Additional contact information
Carole Comerton-Forde: University of Melbourne - Department of Finance; Centre for Economic Policy Research (CEPR)
Billy Ford: Independent
Thierry Foucault: HEC Paris
Simon Jurkatis: Bank of England
Abstract: Investors act as a liquidity back-stop in the corporate bond market. By providing liquidity, investors help ease dealers' balance sheet constraints, especially during market stress. During the March 2020 Dash-for-Cash, in bonds where investors stopped providing liquidity, transaction costs rose by 38%. We find the composition of types of liquidity providers - rather than just their presence - shapes trading costs. Dealers relying on flexible-mandate investors, such as hedge funds, are more resilient to liquidity shocks. Dealers offer discounts to investors for past liquidity services to maintain liquidity provider networks. These discounts represent two-thirds of relationship discounts.
Keywords: Bond Markets; Liquidity; Clients-sourced liquidity; Balance sheet cost
61 pages, May 7, 2025
Questions (including download problems) about the papers in this series should be directed to Antoine Haldemann ()
Report other problems with accessing this service to Sune Karlsson ().
RePEc:ebg:heccah:1564This page generated on 2025-06-10 15:47:03.