Collateral pledgeability and asset manager portfolio choices during redemption waves

  • This paper studies whether Eurosystem collateral eligibility played a role in the portfolio choices of euro area asset managers during the “dash-for-cash” episode of 2020. We find that asset managers reduced their allocation to ECB-eligible corporate bonds, selling them in order to finance redemptions, while simultaneously increasing their cash holdings. These findings add nuance to previous studies of liquidity strains and price dislocations in the corporate bond market during the onset of the Covid-19 pandemic, indicating a greater willingness of dealers to increase their inventories of corporate bonds pledgeable with the ECB. Analysing the price impact of these portfolio choices, we also find evidence pointing to price pressure for both ECB-eligible and ineligible corporate bonds. Bonds that were held to a larger extent by investment funds in our sample experienced higher price pressure, although the impact was lower for ECB-eligible bonds. We also discuss broader implications for the related policy debate about how central banks could mitigate similar types of liquidity shocks.

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Author:Thiago De Araujo FauvrelleGND, Max RiedelORCiDGND, Mathias Skrutkowski
URN:urn:nbn:de:hebis:30:3-715663
DOI:https://doi.org/10.2139/ssrn.4795971
ISSN:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4795971
Series (Serial Number):SAFE working paper (417)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2024
Year of first Publication:2024
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2024/04/18
Tag:Eurosystem collateral eligibility; Investment funds; corporate bonds; dash-for-cash
Edition:April 2024
Page Number:58
Note:
We gratefully acknowledge research support from the Leibniz Institute for Financial Research SAFE.
HeBIS-PPN:518160955
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL-Classification:G Financial Economics / G1 General Financial Markets / G11 Portfolio Choice; Investment Decisions
G Financial Economics / G2 Financial Institutions and Services / G23 Pension Funds; Other Private Financial Institutions
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht