Paolo Alberto Baudino
- 27 May 2026
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2026Details
- Abstract
- The box examines the drivers of euro area investment fund flows into equity markets, with a particular focus on funds investing in currently highly valued US segments. Investment funds play a central role in channelling euro area capital into US equities, making them the key intermediary for assessing investment flows into assets with elevated valuations. Using a BVAR model, the analysis identifies US macroeconomic factors, most notably the AI-driven investment boom, as the dominant driver of recent inflows from the euro area into US equity markets, while deteriorating global risk sentiment has exerted offsetting downward pressure. More accommodative monetary conditions in both the United States and the euro area have supported inflows in recent years. The analysis also shows that flows into US technology equity funds are significantly more sensitive to macroeconomic and monetary shocks, as well as global risk sentiment, than flows into broader equity funds. This makes such funds particularly vulnerable to sudden and disorderly redemptions in the event of adverse developments. The findings highlight the risks to financial stability should these supportive drivers suddenly reverse, particularly through spillovers to euro area markets and wealth effects on euro area investors.
- JEL Code
- E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy
G15 : Financial Economics→General Financial Markets→International Financial Markets
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 27 May 2026
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2026Details
- Abstract
- The box examines euro area investors’ activity in euro area government bond (EGB) markets in response to changes in the slope of the yield curve. Investors are unevenly exposed to different maturities along the EGB yield curve, with non-bank financial institutions playing a particularly important role at the long end. Exploiting granular data on sectoral holdings of sovereign bonds, the analysis shows that euro area investors in EGBs react more strongly to changes in yields in other maturity segments than to changes in yields for the bonds they currently hold. As a result, shifts in the yield curve may trigger portfolio rebalancing across maturities, with non-banks acting as stabilisers of the long end of the curve. The box also documents foreign hedge fund activity in euro area government bond futures markets, highlighting persistent short positions in ultra-long maturities throughout 2025.
- JEL Code
- G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G15 : Financial Economics→General Financial Markets→International Financial Markets
G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 26 November 2025
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2025Details
- Abstract
- This box assesses the liquidity risks of UCITS hedge funds during periods of market stress. The UCITS segment combines the elevated synthetic leverage typical of hedge funds with the frequent redemption terms that are typical of UCITS funds. This combination can cause UCITS hedge funds to act as amplifiers of market stress, as they may face simultaneous liquidity pressures from investor redemptions and margin calls on derivatives exposures.
- JEL Code
- G10 : Financial Economics→General Financial Markets→General
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 26 November 2025
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2025Details
- Abstract
- This box examines the stabilising role of household investors for investment funds during market stress, with a focus on the April 2025 market turmoil. Households’ long-term investment strategies make them less sensitive to market volatility, which can enhance fund resilience. An analysis of the April 2025 market turmoil and other past market downturns reveals that funds held by households experienced smaller outflows than those dominated by institutional or foreign investors. Following the April 2025 market sell-off, households also reinvested more quickly, further stabilising fund liquidity.
- JEL Code
- D14, G11, G23, G40, G50 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
- 26 November 2025
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 2, 2025Details
- Abstract
- Trade turmoil in April 2025 saw a marked change in cross-asset behaviour compared with typical patterns. Notably, the US dollar depreciated strongly while US Treasury yields rose – the opposite of what usually happens in a risk-off environment. This prompted discussions as to whether the safe-haven properties of US dollar-denominated assets might be changing. This is particularly important for euro area financial stability since euro area investors hold US dollar-denominated securities in an amount equivalent to €6 trillion, which represents a significant share of their portfolios. As policy uncertainty remains high and alternative safe assets are scarce, investors’ risk management practices may be evolving. Immediate and decisive implementation of policies associated with the savings and investments union and the capital markets union would help foster an alternative market of safe assets for euro area and global investors.
- JEL Code
- G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G15 : Financial Economics→General Financial Markets→International Financial Markets
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
F31 : International Economics→International Finance→Foreign Exchange
- 21 May 2025
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2025Details
- Abstract
- This box examines the decline in the share of non-banks’ liquid asset holdings and the implications of this for financial stability. In recent years, the share of cash equivalents and HQLA Level 1 holdings has significantly decreased, which may reduce the ability of non-banks to absorb shocks and meet payment obligations, especially under stressed market conditions. Valuation losses on HQLA Level 1 bonds, higher valuation gains on HQLA Level 2 equities and increased investment in less liquid assets have been the key drivers of this decline. Additionally, not all HQLAs retain their liquidity in times of stress. The growing share of HQLA Level 2 assets primarily consists of traded equities, which can suffer sharp valuation losses during periods of market stress and it may only be possible to liquidate them at a significant discount. Furthermore, growing non-bank reliance on indirect exposure to liquid assets via holdings of investment fund shares introduces additional risks, as their liquidity may be uncertain in stress periods. This creates the potential for financial contagion across non-bank financial intermediation sectors, highlighting the need for closer monitoring of liquidity risk and its broader systemic implications.
- JEL Code
- G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions
G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors