The recent distress in corporate bond markets: cues from ETFs

Key takeaways

• Amid widespread sell-offs in risky asset classes, corporate bond exchange-traded funds (ETFs) traded at steep discounts to underlying asset values in March.
• Contributing factors were high market volatility, reduced risk-taking by dealers and investors' reaction to policy decisions.
• Policy interventions that improve market functioning in a given sector can have temporary yet important spillovers to other segments through portfolio rebalancing by investors.