DP16415 Dash for Dollars

Author(s): Ambrogio Cesa-Bianchi, Fernando Eguren Martin
Publication Date: August 2021
Date Revised: August 2021
Keyword(s): COVID-19, credit spreads, Dash-for-cash, Event-Study, Heterogeneity, identification, liquidity, Us dollar
JEL(s): E44, E58, G01, G12, G15, G18
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16415

Within-firm variation of corporate bond spreads around the Covid-19 outbreak shows that US dollar-denominated bonds experienced larger increases in spreads relative to non-dollar bonds, especially at short maturities. Differently, in the non-dollar sample it was the spreads of longer maturity bonds that widened more markedly. Price pressures arising from a liquidity-driven dash for cash alone cannot rationalize these findings. Instead, the patterns we uncover suggest a `dash for dollars', in which investors sold their dollar-denominated assets first, with a consequent impact on prices. We link these dynamics to the dominant role of the US dollar in the international financial system.