Finance

Fixed income

Business

Archaeology

Liquidity crisis

Financial crisis

History

Macroeconomics

Economics

Market liquidity

Mutual fund

Treasury

Monetary economics

Corporate bond

Financial system

Closed-end fund

Bond

Review of Financial Studies

We identify fixed-income mutual funds as an important contributor to the unusually high selling pressure in liquid asset markets during the COVID-19 crisis. We show that mutual funds experienced pronounced investor outflows amplified by their liquidity transformation. In meeting redemptions, funds followed a pecking order by first selling their liquid assets, including Treasuries and high-quality corporate bonds, which generated the most concentrated selling pressure in these markets. Overall, the estimated price impact of mutual funds was sizable at a third of the increase in Treasury yields and a quarter of the increase in corporate bond yields during the COVID-19 crisis.

Mutual Fund Liquidity Transformation and Reverse Flight to Liquidity