Abstract
We document extreme disruption in debt markets during the COVID-19 crisis: a severe price crash accompanied by significant dislocations at the safer end of the credit spectrum. Investment-grade corporate bonds traded at a discount to CDS; ETFs traded at a discount to their NAV, more so for safer bonds. These disruptions disappeared after the Fed announced it would buy corporate bonds. The initial announcement, targeting investment-grade debt only, lowered the spreads of bonds with the most severe dislocations. The later expansion of the program boosted prices throughout markets. We use these facts to evaluate potential channels behind the disruption.
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