Macroeconomics

Spillover effect

Global assets under management

Financial system

Monetary policy

Microeconomics

Corporate bond

Financial fragility

Economics

Fund of funds

Market liquidity

Business

Coronavirus disease 2019 (COVID-19)

Corporate governance

Fragility

Bond market

Physical chemistry

Politics

Political science

Monetary economics

Infectious disease (medical specialty)

Medicine

Chemistry

Institutional investor

Bond

Finance

Investment (military)

Financial crisis

Federal funds

Disease

Pathology

Journal of Monetary Economics

Using daily microdata, we document major outflows in corporate-bond funds during the COVID-19 crisis. Large outflows were sustained over weeks and most severe for funds with illiquid assets, vulnerable to fire sales, and exposed to sectors hurt by the crisis. By providing a liquidity backstop for their bond holdings, the Federal Reserve bond purchase program helped to reverse outflows especially for the most fragile funds. In turn, the program had spillover effects on primary market issuance and peer funds. The evidence points to a "bond-fund fragility channel" whereby the Fed liquidity backstop transmits to the real economy via funds.

Financial fragility in the COVID-19 crisis: The case of investment funds in corporate bond markets