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Do Multi-Sector Bond Funds Pose Risks to Emerging Markets?

Author

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  • Fabio Cortes
  • Luca Sanfilippo

Abstract

Emerging economies in the post-crisis period increasingly saw portfolio debt inflows from a type of large international investment fund: Multi-Sector Bond Funds (MSBFs). These investors have lacked adequate representation in the literature. This paper constructs a new detailed database from micro-level MSBF emerging market (EM) holdings from 2009:Q4–2018:Q2. Exploiting this data, the paper assesses the risks they pose to the financial stability of specific emerging bond markets. The data shows that MSBFs are highly concentrated–both in their positions and their decision-making. The empirical results further suggest that MSBFs exhibit opportunistic behavior (and more so than other investment funds). In periods of high risk aversion, large MSBF portfolio reallocations out of EMs can be associated with underperformance of the same markets, signaling the importance of monitoring their footprint and better understanding their asset allocation decisions.

Suggested Citation

  • Fabio Cortes & Luca Sanfilippo, 2020. "Do Multi-Sector Bond Funds Pose Risks to Emerging Markets?," IMF Working Papers 2020/152, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2020/152
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=49605
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    Cited by:

    1. Rogelio Mercado Jr. & Luca Sanfilippo, 2024. "Multi-Sector Bond Funds: New Evidence on Global and Domestic Drivers and Effectiveness of Capital Account Measures," Working Papers wp53, South East Asian Central Banks (SEACEN) Research and Training Centre.

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