Working Paper: CEPR ID: DP16415
Authors: Ambrogio Cesabianchi; Robert Czech; Fernando Eguren Martin
Abstract: We document a `dash for dollars' in corporate bond markets during the Covid-19 turmoil period. Within-firm variation of corporate bond spreads and transaction volumes reveals that US dollar-denominated bonds experienced larger spread increases and selling pressures relative to non-dollar bonds. To interpret these findings, we quantify the importance of two different hypotheses linked to the dollar's hegemony in the international financial system, namely its superior liquidity and its dominance as a funding currency. Our results highlight the importance of the funding hypothesis, which suggests that investors sold their dollar-denominated assets to meet immediate dollar obligations.
Keywords: heterogeneity; credit spreads; liquidity; dashforcash; us dollar; covid19; event study
JEL Codes: E44; E58; G01; G12; G15; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Federal Reserve's dollar swap lines (F33) | mitigating selling pressures in dollar-denominated securities (F31) |
| liquidity inversion during the crisis (F65) | higher bid-ask spreads for dollar bonds (G12) |
| U.S. dollar-denominated bonds (F34) | larger increase in spreads (G19) |
| pronounced selling pressure on dollar bonds (F34) | significant increase in daily sell volumes (G10) |