As the economic implications of the COVID-19 crisis became clear, the $10 trillion U.S. corporate bond market essentially broke down, prompting the Federal Reserve to intervene in an unprecedented fashion. This article explores the likely causes of this deterioration, and how the market responded to the Federal Reserve's interventions. Despite significant improvements in the corporate bond market, it appears that market liquidity did not fully recover, even after markets had calmed down.

This article appeared in the Third Quarter 2021 edition of Economic Insights. Download and read the full issue.