Bank of Spain points at high risk for corporate debt funds

On the 05/04/20 at 3:20PM


Adrien Paredes-Vanheule

In its first quarter 2020's financial stability review, the Bank of Spain highlighted a very significant volume of redemptions in local investment funds over the three first months of the year. 

It said Covid-19 related market tensions, including liquidity stress, could affect funds invested in high yield corporate debt since corporates ratings are being reviewed and could further downgrade. Thus this will likely result in an increase in the risk profile of these funds, and for the Spanish national bank, this risk could be worsened by significant outflows in the concerned funds. 

"Central bank stabilisation measures have so far prevented the most negative scenarios from materialising," the institution stressed, adding that supervisors have tools to address such temporary scenarios.