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Mr. Frank Hespeler and Felix Suntheim
This note analyzes the stress experienced (and caused) by open-end mutual funds during the March COVID-19 stress episode, with a focus on global fixed-income funds. In light of increased valuation uncertainty, funds experienced a short period of intense withdrawals while the market liquidity of their holdings deteriorated substantially. To cover redemptions, afflicted funds predominantly shed liquid assets first—for example, cash, cash equivalents, and US Treasury securities. But forced asset sales amplified price pressures in markets and contributed to liquidity falling across fixed-income markets. This drop in market liquidity, as well as the general stress in financial markets, may have led to fund investors becoming even more sensitive to challenging portfolio performance and encouraged further withdrawals. Only after central banks intervened, directly and indirectly supporting asset managers, did liquidity and redemption stress subside. Overall, the March episode validated the financial-stability concerns about liquidity vulnerabilities in the fund industry and calls for further action to address them.
Mr. Frank Hespeler and Felix Suntheim
This note analyzes the stress experienced (and caused) by open-end mutual funds during the March COVID-19 stress episode, with a focus on global fixed-income funds. In light of increased valuation uncertainty, funds experienced a short period of intense withdrawals while the market liquidity of their holdings deteriorated substantially. To cover redemptions, afflicted funds predominantly shed liquid assets first—for example, cash, cash equivalents, and US Treasury securities. But forced asset sales amplified price pressures in markets and contributed to liquidity falling across fixed-income markets. This drop in market liquidity, as well as the general stress in financial markets, may have led to fund investors becoming even more sensitive to challenging portfolio performance and encouraged further withdrawals. Only after central banks intervened, directly and indirectly supporting asset managers, did liquidity and redemption stress subside. Overall, the March episode validated the financial-stability concerns about liquidity vulnerabilities in the fund industry and calls for further action to address them.
Mr. Frank Hespeler and Felix Suntheim

flow and asset data: the figure covers at the end of June 2020 45 percent of the equity funds, 43 percent of the fixed-income funds, 30 percent of the mixed funds, and 57 percent of the money market funds reported by the International Investment Fund Association for the global fund sector, including funds of funds. For hedge funds no coverage data are available, since the available data universe for the hedge fund sector also includes closed-end funds. The sample covers the time from January 1, 2020 to August 12, 2020. In panel 3 portfolio compositions are observed

Mr. Frank Hespeler and Felix Suntheim

Front Matter Page Global Financial Stability Notes: The Behavior of Fixed-income Funds during COVID-19 Market Turmoil Prepared by Frank Hespeler and Felix Suntheim December 2020 DISCLAIMER : The views expressed are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management This note analyzes the stress experienced (and caused) by open-end mutual funds during the March COVID-19 stress episode, with a focus on global fixed-income funds. In light of increased valuation

Mr. Frank Hespeler and Felix Suntheim

. “ Are Fixed-Income Funds Well Prepared to Meet Investor Redemptions? ” Global Financial Stability Report Chapter 3, Box 3.1 . Washington, DC , October . International Monetary Fund (IMF) . 2020 . “ Markets in the Time of COVID-19 .” Global Financial Stability Report Chapter 1 . Washington, DC , April . International Organization of Securities Commissions (IOSCO) . 2018 . “ Recommendations for Liquidity Risk Management for Collective Investment Schemes .” Madrid . Jin , Dunhong , Marcin Kacperczyk , Bige Kahraman , and Felix

International Monetary Fund. Monetary and Capital Markets Department