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Outflows from Bank-Loan Funds during COVID-19

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Abstract

The COVID-19 pandemic has put significant pressure on debt markets, especially those populated by riskier borrowers. The leveraged loan market, in particular, came under remarkable stress during the month of March. Bank-loan mutual funds, among the main holders of leveraged loans, suffered massive outflows that were reminiscent of the outflows they experienced during the 2008 crisis. In this post, we show that the flow sensitivity of the loan-fund industry to the COVID-19 crisis (and to negative shocks more generally) seems to be even greater than that of high-yield bond funds, which also invest in high-risk debt securities and have received much attention because of their possible exposure to run-like behavior by investors and their implications for financial stability.

Suggested Citation

  • Nicola Cetorelli & Gabriele La Spada & João A. C. Santos, 2020. "Outflows from Bank-Loan Funds during COVID-19," Liberty Street Economics 20200616a, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:88157
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    More about this item

    Keywords

    loan funds; COVID-19; high-yield bond funds;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G01 - Financial Economics - - General - - - Financial Crises

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