Liquidity management and asset sales by bond funds in the face of investor redemptions in March 2020

Key takeaways

• Investor redemptions are one factor behind asset sales by open-ended mutual funds, but an important
  additional factor is the selling due to the funds' liquidity management.
• Funds holding illiquid assets reacted to redemptions in March 2020 by adding to their cash buffers even
  after meeting investor redemptions. For such funds, asset sales exceeded investor redemptions.
• Increases in end-of-period cash holdings were less pronounced for funds that started the stress period
  with larger buffers, suggesting that such funds were less prone to selling at the height of the stress.