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Home | Events Archive | Anatomy of a Liquidity Crisis: Corporate Bonds in the Covid-19 Crisis
Seminar

Anatomy of a Liquidity Crisis: Corporate Bonds in the Covid-19 Crisis


  • Series
    Array
  • Speaker(s)
    Maureen O'Hara (Cornell University, United States)
  • Field
    Finance, Finance
  • Location
    Online
    Online
  • Date and time

    September 22, 2020
    16:00 - 17:15

Abstract: We examine the microstructure of liquidity provision in the COVID-19 corporate bond liquidity crisis. During the two weeks leading to Fed interventions, transaction costs soared, trade-size pricing inverted, and dealers, in particular non-primary dealers, shifted from buying to selling, causing dealers’ inventories to plummet. Liquidity provisions in electronic customer-to-customer trading increased, though at prohibitively high costs. By improving dealer funding conditions and providing a liquidity backstop, the Primary Dealer Credit Facility (PDCF) and the Secondary Market Corporate Credit Facility (SMCCF) calmed dealers and stabilized trading conditions. Most of the impact of SMCCF on bond liquidity seems to have materialized following its announcement. We argue that the Federal Reserve’s actions reflect a new role as market maker of last resort.

Link to the seminar:

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https://tilburguniversity.zoom.us/j/96228670610?pwd=QlNKdWp3K3haVHk4bVFSQlRvcW9rUT09

Meeting ID: 962 2867 0610

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