Staff Working Paper No. 932
By Ambrogio Cesa-Bianchi, Robert Czech and Fernando Eguren-Martin
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.
This version was updated in April 2023.
Dash for dollars