[15] Schrimpf, A. et al., op. cit. ; Duffie, D., op. cit. ; Liang, J.N. (2020), “  Corporate Bond Market Dysfunction During COVID-19 and Lessons from the Fed’s Response”, Hutchins Center Working Papers, No 69, October. [16] Cera, K. et al. (2020), “The role of bank and non-bank interconnections in amplifying recent financial contagion”, Financial Stability Review, ECB, May. https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201119_1~4a1ff0daf9.en.html  6/7  20/11/2020  COVID-19 and the liquidity crisis of non-banks: lessons for the future  [17] Although LVNAV funds guarantee constant prices under normal market conditions, they are designed to lose this characteristic and convert into a variable net asset value (VNAV) fund if the price of the underlying assets changes by 20 basis points or more. The higher riskiness of the underlying assets was likely amplified by the risk of conversion into a VNAV fund, as a number of LVNAV funds were close to breaching the regulatory limits on net asset value during the recent period of volatility. Investors may therefore have redeemed early during the recent stress episode and contributed to additional outflows and liquidity shortages in these funds. [18] De Guindos, L. and Schnabel, I. (2020), “The ECB’s commercial paper purchases: A targeted response to the economic disturbances caused by COVID-19”, The ECB Blog, 3 April. [19] Swing pricing rules can discourage investors from selling shares in funds and can provide fund managers with additional time to adjust their portfolios, mitigating the risk of fire sales. There are mixed results in studies that assess the effectiveness of swing pricing.
Even in Japan, where the direct impact of the turmoil has been relatively contained, the economy remains fragile and prospects have deteriorated. The emerging market economies stand in sharp contrast with this gloomy outlook, as their growth forecasts have been revised down only marginally. In fact, one of the most surprising features of the recent developments in the world economy has been the resilience of most emerging market economies to the unravelling of the global turbulence. This feature is even more remarkable taking into account their recent history of financial and economic instability. If we look at basic financial market indicators of risk – such as the sovereign spreads, exchange rates or equity markets – what we observe is that, overall, they have behaved significantly better than comparative asset classes in the industrial economies over the past  BIS Review 56/2008  1  nine months. In addition, credit has generally continued to be available in these economies – albeit, admittedly, at a somewhat higher cost – and creditworthy emerging market borrowers have not been shut out from international markets, contrary to what used to happen in the past. It is true that issuance abroad has been reduced notably since the beginning of the turbulence, and that those borrowers with relatively low credit ratings may have been shut out completely from international markets.