Financial Stability and the Coronavirus Pandemic

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The Atlanta Fed recently helped organize a conference titled "Financial Stability and the Coronavirus Pandemic." The conference had three sessions devoted to problems focusing on various aspects of how the markets for corporate credits responded to the COVID-19 shock including corporate bond investment funds, the corporate bond market, and the corporate loan market. This article summarizes some of the important findings of the papers presented at the conference.

Key findings:

  • Liquidity stresses at corporate bond mutual funds have had notable effects on bond markets before COVID-19 and even larger effects during February and March 2020.
  • The Fed's announcement of a facility to purchase corporate bonds and that facility's subsequent purchases of bonds resulted in a material improvement in bond prices and market functioning.
  • The big nonbank lenders in the syndicated loan market reduced their activity. Banks honored drawdowns of corporate lending lines but at the cost of reducing the availability of funding to other firms.

Center Affiliation: Center for Financial Innovation and Stability

JEL classification: G01, G12, G18, G21, G23

Key words: corporate bond mutual funds, corporate bond market, COVID-19 shock, Federal Reserve facilities, collateralized debt obligations, syndicated loans, lines of credit link

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