Federal Reserve: Did Third Avenue’s Liquidation Reduce Corporate Bond Market Liquidity?

Liquidity Series III, eleventh of eleven posts
The announced liquidation of Third Avenue’s high-yield Focused Credit Fund (FCF) on December 9, 2015, drew widespread attention and reportedly sent ripples through asset markets. Events of this kind have the potential to increase the demand for market liquidity, as investors revise expectations, reassess risk exposures, and fulfill the need to trade. Moreover, portfolio effects and general fears of contagion may increase the demand for liquidity in assets only remotely related to a liquidating firm’s direct holdings. In this post, we examine whether FCF’s announced liquidation affected liquidity and returns in broader corporate bond markets.
The post on the Fed’s Liberty Street Economics blog is available here: http://libertystreeteconomics.newyorkfed.org/2016/02/did-third-avenues-liquidation-reduce-corporate-bond-market-liquidity.html#.Vsh25xiWaWw

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