This paper examines how securities lending affects liquidity management and performance in corporate bond mutual funds. We show that funds engaging in lending hold significantly less cash than non-lenders, suggesting a more aggressive portfolio strategy. While lending funds outperform in normal times due to additional income from lending fees and collateral reinvestment, they underperform during periods of large outflows. Using detailed fund-level and position-level data, we document that lending funds are more likely to recall and sell previously lent bonds when facing redemptions, especially bonds they hold in large ownership, creating price pressure and dragging down performance. Importantly, we find that this mechanism is unique to bond funds and not present in equity funds, reflecting the greater illiquidity of bond markets. Our findings highlight a tradeoff between return enhancement and fragility, and offer new insight into how a common fund practice like securities lending can amplify risks during stress.