Increased ownership of corporate bonds by passive funds reduces the demand to borrow these bonds, thereby easing short-selling constraints in the corporate bond market. This finding contrasts with that in the equity market, where passive ownership increases the demand for equity borrowing. The difference arises because in the bond market, short sellers are mainly dealers rather than speculative customers. Since passive ownership compresses credit spreads, the higher valuation reduces the buying pressure of active investors and consequently reduces the need for dealers to borrow bonds to short in market-making activities. These results highlight a positive externality of passive bond ownership: it facilitates dealers' ability to manage customer-driven buying pressure. Given that bond borrowing primarily supports market-making as a liquidity provision, our results caution against imposing short-selling restrictions on corporate bonds.

This paper provides a guide for using causal inference with asset prices and quantities. Our framework revolves around an elementary assumption about portfolio demand: homogeneous substitution conditional on observables. Under this assumption, standard cross-sectional instrumental variables or difference-in-difference regressions identify the relative demand elasticity between assets with the same observables, the difference between own-price and cross-price elasticity. In contrast, identifying aggregate elasticities and substitution along specific characteristics requires joint estimation using multiple sources of exogenous time-series variation. The same principles apply to the estimation of multipliers measuring the price impact of supply or demand shocks. Our assumption maps to familiar restrictions on covariance matrices in classical asset pricing models, encompass demand models such as logit, and accommodate rich substitution patterns even outside of these models. We discuss how to design experiments satisfying this condition and offer diagnostics to validate it.

We use granular portfolio holdings data on major U.S.\ bond investors to examine the transmission of monetary policy. When the Federal Reserve conducts expansionary monetary policy, mutual funds increase their bond purchases due to retail inflows; insurance companies lengthen portfolio durations to hedge liabilities; and banks engage in both activities to accommodate deposit inflows and counteract the shortening of MBS duration. This elevated demand acts as a ``helping hand,'' amplifying the Fed's impact on long-term yields. Most of the amplifying demand is absorbed by new bond issuances, while dealers play a limited role. Using an asset demand system framework, we show that investor demand explains a large share of the excess sensitivity of long-term yields. Meanwhile, bond issuance has become increasingly elastic in recent years, which explains the decline in yield sensitivity at low frequency. Overall, the ``helping hand'' effect of monetary policy is three times as important as changes in risk-free rates in driving corporate bond issuance.