No. 1404 - Financial fragilities and risk-taking of corporate bond funds in the aftermath of central bank policy interventions

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by Nicola Branzoli, Raffaele Gallo, Antonio Ilari and Dario PortioliMarch 2023

This paper examines the effects of central banks' pandemic-related asset purchase programmes on the exposure of European and US corporate bond funds to credit and liquidity risks.

In 2020, the funds that held a high share of securities eligible for inclusion in purchase programmes immediately prior to the pandemic crisis, and that were consequently more sensitive to central bank interventions, reduced both the credit rating and degree of liquidity of their portfolios to a greater extent than those of other funds on average. Moreover, there was a greater increase in the riskiness of their portfolios when they underperformed with respect to their peers.

Published in 2024 in: Journal of Financial Stability, v. 72, Article 101261.