Things Fall Apart: Fixed Income Markets in the COVID-19 Crisis

This article provides a critical appraisal of the March 2020 crisis in fixed income markets. We synthesize the main events, characterize what appears to be an emerging consensus on what caused the market breakdowns, summarize how the Federal Reserve's actions contributed to its resolution, and discuss potential lasting effects of the crisis. This review makes clearer the fragilities and interconnectedness that characterize the current fixed income market structure and their effects on liquidity provision. We argue that the current market structure, combined with the continued growth of Treasury markets, corporate and municipal bond markets, and particularly, mutual funds, raises the specter that periodic instability may remain a feature of fixed income markets. Expected final online publication date for the Annual Review of Financial Economics, Volume 15 is November 2023. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.