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Multi-Sector Bond Funds: New Evidence on Global and Domestic Drivers and Effectiveness of Capital Account Measures

Author

Listed:
  • Rogelio Mercado Jr.
  • Luca Sanfilippo

Abstract

Portfolio bond flows to emerging and developing market economies (EDMEs) from multi-sector bond funds (MSBFs) are volatile and highly concentrated, rendering them potentially risky. This paper uses a recent MSBF flows dataset to shed more light on capital flow push and pull factors and to provide new evidence on the effectiveness of capital account tightening measures in reducing volatile MSBF flows. The results show: (i) higher U.S. monetary policy rates and global risk aversion significantly reduce aggregate MSBF flows and those denominated in hard currencies, while stronger global commodity price growth and global liquidity significantly increase them; (ii) global and domestic GDP growth (surprisingly) have a countercyclical impact on MSBF flows during our sample period, and, importantly, (iii) capital account tightening measures that target fixed income investment funds are effective in reducing MSBF flows to EDMEs, especially during periods of increased stress. Together, these results provide new insights into multi-sector bond funds and the importance of designing and implementing targeted capital control measures.

Suggested Citation

  • Rogelio Mercado Jr. & Luca Sanfilippo, 2024. "Multi-Sector Bond Funds: New Evidence on Global and Domestic Drivers and Effectiveness of Capital Account Measures," CAMA Working Papers 2024-28, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2024-28
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    References listed on IDEAS

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    More about this item

    Keywords

    multi-sector bond funds; portfolio bond flows; and capital controls;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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