November - 2019
  01 02 03
04 05 06 07 08 09 10
11 12 13 14 15 16 17
18 19 20 21 23 24
25 26 27 28 29 30  

Robert Czech

Robert Czech

is a Research Economist in the Capital Markets Division within our Financial Stability and Strategy Directorate. His research is mainly focused on the structure and interconnectedness of credit markets, with a particular interest in the sterling corporate bond market. Robert’s research interests also include exchange-traded funds (ETFs), central clearing and the structure of over-the-counter (OTC) derivatives markets. Robert holds a PhD in Finance from Imperial College London, and a BSc and MSc in Business Administration (Major Finance) from the University of Cologne.

Back to speakers

Robert Czech: Credit Default Swaps and Corporate Bond Trading

Using regulatory data on CDS holdings and corporate bond transactions, I provide evidence for a liquidity spillover effect from CDS to bond markets. Bond trading volumes are larger for investors with CDS positions written on the debt issuer, in particular around rating downgrades. I use a quasi-natural experiment to validate these findings. I also provide causal evidence that CDS mark-to-market losses lead to fire sales in the bond market. I instrument for the prevalence of mark-to-market losses with the ratio of non-centrally cleared CDS contracts of an individual counterparty. The monthly corporate bond sell volumes of investors exposed to large mark-to-market losses are three times higher than those of unexposed counterparties. Returns decrease by more than 100 bps for bonds sold by exposed investors, compared to same-issuer bonds sold by unexposed investors. My findings underline the risk of a liquidity spiral in the credit market.

Last modified: 2019.08.26.