I am a Principal Economist at the Board of Governors of the Federal Reserve System. Before joining the Board, I received a Ph.D. in Finance from Tilburg University in the Netherlands.

My research interests lie in the microstructure of decentralized over-the-counter (OTC) bond markets. My papers focus on liquidity, trading frictions, and dealer intermediation. In particular, I study bond dealers in their role as liquidity providers and their interactions with nonbank financial institutions.

In my policy work, I mainly monitor international corporate debt markets, focusing on credit risks and their potential impact on financial stability.

Federal Reserve Board

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Published & Forthcoming Papers

The Green Corporate Bond Issuance Premium

[SSRN]

joint with John Caramichael

Examines the borrowing cost advantage for firms issuing green bonds compared to conventional ones, finding that green bonds, on average, have slightly lower yield spreads due to demand pressure at issuance. This benefit emerges as of 2019 and is primarily observed among large, investment-grade issuers in developed economies.

Journal of Banking & Finance, 2024, Vol. 162, 107126.

Media: Financial Times Moral Money, Bloomberg Money Stuff, Financial Times, Bloomberg News

Working Papers

Bond Market Illiquidity: Is Portfolio Trading the Solution?

joint with Jessica Shi Li, Maureen O'Hara, and Xing (Alex) Zhou

Investigates the impact of bond portfolio trading on corporate bond liquidity, revealing that this trading innovation generally enhances liquidity, especially for riskier and illiquid bonds, due to dealers' ability to hedge and diversify inventory risks. However, during market stress, the benefits diminish, and portfolio trading can become very costly, highlighting its limitations as a solution for bond market illiquidity.

Under Review: R&R

Bond Market Resiliency: The Role of Insurers

joint with Maureen O'Hara, and Xing (Alex) Zhou

Examines the role of insurance companies in enhancing corporate bond market resiliency during the COVID-19 liquidity crisis. Finds that insurers with stable funding, on net, bought bonds facing fire sales from mutual funds, thereby supporting market liquidity and stabilizing bond prices through their funding advantage and established trading relationships with dealers.

Under Review: R&R

Media: Institutional Money

Navigating the Low-Carbon Shift: Balancing Municipal Finances with Climate Goals

joint with Marcelo Ochoa

Studies how transitioning from coal to low-carbon energy sources affects municipal finances in U.S. coal communities, using the rise of hydraulic fracturing as a case study. Finds that declining coal mining activity and the associated transition risks weaken municipal debt sustainability, raise long-term borrowing costs, and are seen as a protracted shock by investors, with the most significant effects seen in coal counties highly exposed to natural gas production.

Intermediary Balance Sheet Constraints, Bond Mutual Funds' Strategies, and Bond Returns

joint with Mariassunta Giannetti, Chotibhak Jotikasthira, and Martin Waibel

Explores how the Basel III leverage ratio requirement on bank dealers has led bond mutual funds to benefit from taking on a greater role in liquidity provision for investment-grade corporate bonds. This shift has also increased the susceptibility of these bonds to disruptions due to outflows from the mutual fund industry, as evidenced by the severe deterioration in liquidity and returns during the onset of the COVID-19 pandemic.

Under Review: Submitted

Managing Regulatory Pressure: Bank Regulation and its Impact on Corporate Bond Intermediation

joint with Martin Waibel

Investigates how Basel regulations affect corporate bond intermediation, revealing that bank dealers markedly reduce their bond inventories near quarter ends. This behavior results in significant liquidity impairments, especially for balance sheet-intensive trades, and leads bank dealers to offload large bond positions to nonbank financial institutions at discounted prices close to reporting dates.

Work in Progress

Middlemen Matter: Corporate Bond Market Liquidity and Dealer Inventory Funding

[Online Appendix]

[This paper is being revised and updated]

Downgrades, Dealer Funding Constraints, and Bond Price Pressure

[This paper is being revised and updated]

Research Fields

  • Market Microstructure
  • Financial Intermediation and Dealers
  • Liquidity and Trading Frictions
  • Over-the-counter (OTC) Bond Markets

Contact

Federal Reserve Board
20th and Constitution Ave, NW
Washington, DC, 20551 USA
andreas.c.rapp@frb.gov

Disclaimer: The views expressed on this website are my sole responsibility and should not be interpreted as reflecting the views of the Board of Governors of the Federal Reserve System or any other person associated with the Federal Reserve System.