Xin Liu is assistant professor of School of Finance, Renmin University. He obtained his Ph.D degree from University of Hong Kong. His research interests include empirical asset pricing, institutional investor, and behavioral finance, etc. He has published papers in leading finance journals, including Review of Finance, Journal of Corporate Finance, Journal of Financial Markets, and Journal of Empirical Finance.

Bond mutual funds holding illiquid assets (e.g., corporate bonds) actively manage their Treasury positions to buffer redemption shocks. We argue that this liquidity management practice can transmit and concentrate non-fundamental demand shocks from fund flows onto the Treasuries the funds hold, leading to fragility in Treasury prices. We find that Treasuries held more by bond funds tend to exhibit high return comovement during downside markets, negatively skewed returns, and frequent liquidity co-jumps, compared with Treasuries with little fund ownership. We address endogeneity concerns by exploiting the 2003 mutual fund scandal as an shock to fund ownership. Such mechanism can help explain the COVID-19 Treasury market turmoil in March 2020.