Regulators relax restrictions on short selling during ‘normal’ times and ban them during periods of market stress. But we know very little of how short selling strategies change during periods of market stress; not least because it is precisely when short selling is invariably curtailed by bans or other constraints imposed by the regulators. In this paper we directly examine the changing nature of short selling strategies between 2006 and 2011 in the corporate bond market, where short sales were not subjected to regulatory interventions during the financial crisis of 2008. We use the Lehman bankruptcy, measures of funding liquidity, the TED spread, prime-broker CDS spreads and market volatility, the VIX index, to identify periods of market stress. We show that that, contrary to regulatory concerns, short sellers are most valuable as informed traders and liquidity providers during periods of market stress, especially in bonds that are most vulnerable to arbitrage crashes: noninvestment grade and non-CDS bonds. More specifically, a long-short trading strategy based on short selling activity generates an abnormal return of 14.19% per annum in the post-Lehman period, while it is small and insignificant prior to the Lehman bankruptcy. Moreover, the entire change in the informativeness of short sales emanates from the noninvestment grade market; yielding abnormal returns of 37.95% annually in the post-Lehman period. Furthermore, the short selling alpha in the noninvestment grade market increases from 20% to 159% when the TED spread is above its average value; from 14% to 30% when primebroker CDS spreads are high; and from 10% to 34% when the VIX is above its time-series average. Finally, we show that short sellers continue to provide liquidity during the crisis periods, even in the noninvestment grade bond market. We contribute to the literature on short sales by providing evidence that short sellers are most valuable during a crisis, when arbitrage capital is costly, liquidity is scarce, and prices are most distorted.