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Fabio Cortes and Luca Sanfilippo
Emerging economies in the post-crisis period increasingly saw portfolio debt inflows from a type of large international investment fund: Multi-Sector Bond Funds (MSBFs). These investors have lacked adequate representation in the literature. This paper constructs a new detailed database from micro-level MSBF emerging market (EM) holdings from 2009:Q4–2018:Q2. Exploiting this data, the paper assesses the risks they pose to the financial stability of specific emerging bond markets. The data shows that MSBFs are highly concentrated–both in their positions and their decision-making. The empirical results further suggest that MSBFs exhibit opportunistic behavior (and more so than other investment funds). In periods of high risk aversion, large MSBF portfolio reallocations out of EMs can be associated with underperformance of the same markets, signaling the importance of monitoring their footprint and better understanding their asset allocation decisions.
Fabio Cortes and Luca Sanfilippo

, posing further challenges to authorities in the conduct of macroeconomic and macroprudential policy. 2 . Second, on the flipside, even when such funds turn out to be stickier–be it by choice or forced by low market liquidity, 41 —large concentrated positions in certain segments of the local sovereign bond market can render parts of the domestic yield curve illiquid and potentially impair monetary policy transmission. This further highlights the importance of MSBFs especially for relatively small and illiquid EM asset markets, and it shows one important mechanism for

Mr. Christian B. Mulder, Phil De Imus, Ms. L. Effie Psalida, Jeanne Gobat, Mr. R. B. Johnston, Mr. Mangal Goswami, and Mr. Francisco F. Vazquez
This paper outlines some of the key information gaps in the information used in the assessment of financial institution and financial system stability and the priorities for filling them. Key areas for attention include the granularity of disclosures on exposures by large and complex financial institutions; disclosures and assessments of complex structured products; revamping of indicators used in financial stability analysis to focus on indicators with greater early warning content; and improving transparency in over-the-counter derivatives markets. Recommendations have been made by several institutions and forums to address gaps in information that contributed to the crisis. One of the key recommendations is to adopt good practices for disclosures by banks on activities affected by the financial turmoil, including meaningful information on exposures and impacts, with appropriate levels of granularity. It is imperative to strengthen public disclosure practices of systemically important financial institutions by making reporting information more granular and consist.
Mr. Christian B. Mulder, Phil De Imus, Ms. L. Effie Psalida, Jeanne Gobat, Mr. R. B. Johnston, Mr. Mangal Goswami, and Mr. Francisco F. Vazquez

as well as investing/speculating, including directional and relative value trades. Anecdotal evidence suggests that currency arbitrage has been a significant source of flows into a range of EM asset markets, and that such trades are often conducted via derivatives positions. Indeed, foreign exchange swaps are the most frequently traded derivatives in EMs. A particular example of information gap in this area is carry trades, further complicated by the lack of agreement among analysts and market participants about what constitutes a carry trade. Data on the magnitude

International Monetary Fund. Monetary and Capital Markets Department

increasing participation of dedicated funds seems to lower EM spreads. 14 The EM investor base is also diversifying geographically as well as through inclusion of official investors. Inflows from Asia and the Middle East have been strong and are likely to grow as Asian investors continue to search for yield, and Middle Eastern and other oil-exporting investors recycle a portion of their petrodollar surpluses into EM assets. Market sources also indicate that central banks in MMs have begun to allocate—from a virtually zero base—a small portion of their reserves to EM debt