Leverage and Margin Spirals in Fixed Income Markets during the COVID-19 Crisis

By A. Schrimpf, Hyun Song Shin, Vladyslav Sushko. Social Science Research Network, 2020

119 citations recorded by the source corpus.

For a two-week period in mid-March 2020, government bond markets experienced uncharacteristic turbulence, sometimes selling off sharply in risk-off episodes when they would normally attract safe haven flows. Evidence in the US Treasury market points to forced selling of treasury securities by investors who had attempted to exploit small yield differences through the use of leverage. Even though government bonds are safe assets, large holdings by leveraged investors may detract from orderly market functioning and may necessitate interventions by the central bank.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/220146f461375eaa5507dc8950fe5be01c7694bd

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Citations in the corpus

The Covid-19 economic crisis: dangerously unique (2020, background): “Think, in particular, of the extraordinary disruptions to the US Treasury market, which highlighted the nexus between hedge fund operations and other investment vehicles, most notably money market mutual funds (Schrimpf et al (2020a), Eren et al (2020a); and Graph 10).”
Treasury inconvenience yields during the COVID-19 crisis (2020, unknown): “Three related works, Duffie (2020) , Schrimpf et al. (2020) , and Vissing-Jorgensen (2020) also provide some evidence on how the Treasury market has been stressed by COVID-19 shocks; the first two papers focus on raising policy proposals that can potentially make the Treasury market robust to…”
In sickness and in debt: The COVID-19 impact on sovereign credit risk (2020, background): “…Kargar et al., 2020; Boyarchenko et al., 2020; Fahlenbrach et al., 2020; Falato et al., 2020 ), Treasury ( He et al., 2020; Fleming and Ruela, 2020; Schrimpf et al., 2020 ), stock ( Boudoukh et al., 2020; Ding et al., 2020; Alfaro et al., 2020; Croce et al., 2020a; Gerding et al., 2020; Ramelli…”
Mutual Fund Performance and Flows during the COVID-19 Crisis (2020, unknown): “…of equity markets to COVID-19 is analyzed in a growing number of studies.2 In the bond market, liquidity evaporated in March 2020, not only for corporate bonds (e.g., Kargar et al. 2020; O’Hara and Zhou 2020) but also for the usually liquid Treasuries (e.g., Schrimpf, Shin, and Sushko 2020).”
It’s What You Say and What You Buy: A Holistic Evaluation of the Corporate Credit Facilities (2020, background): “Haddad, V., A. Moreira, and T. Muir (2020): “When selling becomes viral: Disruptions in debt markets in the COVID-19 crisis and the Fed’s response,” Working paper 27168, National Bureau of Economic Research. He, Z. and A. Krishnamurthy (2012): “A Model of Capital and Crises,” Review of Economic Stud”