Back Matter
  • 1 https://isni.org/isni/0000000404811396, International Monetary Fund

References

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Appendix

Table 1.

Sample Overview and Summary Statistics

article image
Sources: Refinitiv Datastream; and Morningstar.Note: The sample is compared with the global fixed income sector, including funds of funds, as reported by the International Investment Funds Association in March 2020. Observations with net flows below –50 percent or above 50 percent have been dropped. Bn = billion; EM = emerging market; NAV = net asset value; USD = US dollars.
1

The analysis in this note is based on three separate samples of fixed-income funds representing up to 2,877 funds or up to about 65 percent of global fixed-income funds (see Appendix Table 1).

2

In the first half of 2020, mutual funds suspended withdrawals from funds with a total of $62 billion in assets under management, 0.11 percent of the sector’s total assets (Fitch Ratings 2020). Of the funds that suspended redemptions, real estate funds were the most prevalent.

3

Assets designated as cash equivalents include securities as well as time deposits with maturities of less than 92 days. In fact, cash buffers were depleted more strongly than assets with liquidity features equivalent to cash. In unreported results we show that US Treasury securities served as an alternative source for financing redemptions, especially for fixed-income funds not specialized in any particular asset class segment. Funds holding exchange-traded fund shares, which typically have higher secondary market liquidity than underlying securities, used those for redemptions as well.

4

Detailed portfolio holdings data are available only for a subset of funds (638 funds representing about 24 percent of the global fixed-income sector). Bid-ask spreads are not available for all securities and are based on end-of-day composite spreads, which may not fully reflect the costs of trading bonds in large quantities.

5

Running several robustness tests, including an alternative stress dummy based on values of the VIX exceeding or equal to its 95th percentile during January 2010 to May 2020, adding additional variables such as lagged flows and lagged returns (the latter together with interaction terms for the respective dummy used) did not change results qualitatively.

6

Results are drawn from piecewise linear regressions (as in Sirri and Tufano 1998; Ferreira and others 2012) of daily fund net flows on past returns, which allow flow performance sensitivities to vary across performance levels.

7

In the long run markets may start to anticipate future central bank interventions in times of stress, which could lead to moral hazard.

8

Although data limitations did not allow this result to be established clearly for the March 2020 turmoil period, Jin and others (2019) provide respective evidence for UK corporate bond funds during stress periods.

The Behavior of Fixed-income Funds during COVID-19 Market Turmoil
Author: Mr. Frank Hespeler and Felix Suntheim