Federal Reserve Studied Mutual Fund Liquidity Risks

New research tracks how high-yield and bank loan funds respond to major market stress events.

Updated on Oct. 1, 2026 in Stock Markets

Isometric editorial illustration of a stack of solid rectangular blocks in teal and slate blue, representing fund liquidity. — Federal Reserve researchers found that investor outflows in high-yield and bank loan mutual funds vary significantly based on fund liquidity profiles during market shocks. AI Illustration. Upload story photo >

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Do you trust your mutual fund investments to remain accessible during sudden market shocks?

Federal Reserve researchers recently analyzed liquidity transformation risks in bank loan and high-yield mutual funds. The study examined how investor outflows shifted in response to market shocks during the COVID-19 pandemic and the 2025 Liberation Day tariff announcement.

Why it matters

The findings help investors understand the potential for volatility in funds holding illiquid underlying assets, such as corporate bonds and loans. Understanding these liquidity risks is critical when assessing how different economic shocks impact fund performance and accessibility.

By late 2025, assets in high-yield corporate bond funds reached $263 billion, marking a 13% increase since 2019, while bank loan fund assets fell to $71 billion, a 21% decrease over the same period.

The players

Federal Reserve

The central bank of the United States that sets monetary policy and oversees systemic financial stability.

U.S. Securities and Exchange Commission

The federal agency that enforces financial disclosure rules for investment funds and market participants.

The details

Researchers calculated liquidity and illiquidity ratios using monthly data reported to the U.S. Securities and Exchange Commission to assess how funds handle investor redemptions during crises. The data reveals that investor behavior varies by liquidity profile, with funds showing different outflow patterns during the 2020 pandemic compared to the 2025 Liberation Day tariff announcement.

2019 marked the baseline for fund asset level comparisons.
March 2020 saw the onset of COVID-19 market shocks.
April 2025 was the date of the Liberation Day tariff announcement.
Late 2025 was the reporting period for total fund assets.
September 29, 2026 was the publication date of the research update.

Money Landscape

This research provides a modern look at liquidity risks following the market turbulence observed during the COVID-19 pandemic. It updates the understanding of how mutual fund structures interact with external economic shocks.

Investors holding high-yield or bank loan funds should review their risk tolerance and liquidity needs in light of these documented market patterns. Always discuss how fund volatility fits into your long-term financial goals with a qualified financial professional.

The takeaway

Liquidity transformation risks remain a key factor in how mutual funds respond to unexpected economic events. Consider tracking the liquidity profile of your holdings to ensure they align with your personal risk tolerance during times of market uncertainty.