https://doi.org/10.52903/wp2026358
BOND FUNDS' RISK TAKING AND MONETARY POLICY
Sofia Anyfantaki
European Central Bank and Bank of Greece
Haris Giannakidis
Bank of Greece
Dimitris Malliaropulos
Bank of Greece and Dept of Banking and Finance, University of Piraeus
Petros Migiakis
Bank of Greece
Filippos Petroulakis
Bank of Greece
ABSTRACT
Using granular security-level data from bond funds domiciled in the US and the euro area, we identify a market-based risk-taking channel of monetary policy transmission via the credit-risk and the maturity structure of bond funds' portfolios. We measure credit risk at the fund level as the weighted average credit rating of the fund's bond holdings. We find that accommodative monetary policies by the Fed and the ECB are associated with increased risk in bond funds' portfolios. Interestingly, risk-taking is more pronounced for funds with longer-term holdings relative to short-term ones and unconventional monetary policy exerts stronger market-based risk-taking effects than interest rate policy. Finally, we find that Fed's monetary policy has a stronger impact on funds' risk-taking behaviour than the ECB's, highlighting the dominant role of US monetary policy in global financial markets.
Keywords: Monetary policy; non-bank financial institutions; investment funds; risk taking
JEL-classifications: E52, G12, G15, G20
Acknowledgments: This paper was prepared under the European System of Central Banks ChaMP research network (Challenges for the Transmission of Monetary Policy in a Changing World). We would like to thank Loriana Pelizzon, Vasso Ioannidou, Hans Degryse, Jose Luis Peydro, Carlo Altavilla, Giulio Nicoletti and Ugo Albertazzi for their valuable comments on previous drafts of this paper. Special thanks are due to the coordinators of the ChaMP Network (the ESCB research network on monetary policy in a changing world) -- Philipp Hartmann, Diana Bonfim, and Margherita Bottero -- for their guidance. We extend our gratitude to all participants participants of the 4th workshop of ChaMP Workstream 1 (9 October 2024 Banco de Portugal, Lisbon Portugal), the 10th workshop of the Eurosystem MPC Task Force on Banking Analysis for Monetary Policy (21-22 October 2024 Osterreichische Nationalbank, Vienna Austria) and the 2025 Special NBFI ChaMP workshop (17 November 2025, SAFE House of Finance Goethe Univ., Frankfurt Germany. The views expressed in this paper are those of the authors and do not necessarily reflect those of the European Central Bank, the Bank of Greece, or the Eurosystem.
Correspondence:
Petros Migiakis
Economic Analysis and Research Department
Bank of Greece
El.Venizelos 21, 10250 Athens, Greece
Tel.: +30-2103203587
email: pmigiakis@bankofgreece.gr