A Federal Reserve study updates analysis of liquidity transformation risks in U.S. bank loan (BL) and high-yield (HY) mutual funds, highlighting persistent challenges. Using SEC Form N-PORT data, researchers found BL funds’ median illiquidity ratios have risen to pandemic-era levels, while HY funds’ ratios have declined. BL funds show increased liquidity transformation risk despite stable liquidity ratios, as higher illiquidity ratios suggest greater vulnerability during stress. During the 2025 tariff shock, funds with above-median liquidity ratios experienced larger outflows, aligning with prior research. In contrast, March 2020 pandemic-era data showed BL funds with lower liquidity ratios faced higher outflows. The study notes that while precautionary liquidity management mitigates risks under normal volatility, it may insufficiently address extreme shocks like the pandemic. These findings underscore the need for continued monitoring of liquidity dynamics in corporate debt funds.
Made by AI. If you spot anything of concern write us at contact@cybach.com. We’ll promptly correct irregularities.