Board of Governors of the Federal Reserve System

Figure 1: Noise in the corporate bond market

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Figure 2: Noise, by credit rating and remaining time to maturity

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Figure 3: Noise, by remaining time to maturity: Comparing the Global Financial Crisis and COVID crises

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Figure 4: Dealer gross positions in the corporate bond market

Historical quantity of liquidity
There are two panels, stacked vertically. The x-axis of the top chart begins in 2002 and ends in 2020. The y-axis has units of billions of dollars; it ranges from 15 to 50, and it has a log scale. There is one solid, red line. It represents the historical time series of the quantity of liquidity. The series demonstrates much variation; it initially rises in the early 2000s; it declines during the financial crisis in 2008; it recovers in 2008; it is then relatively flat, with substantial variation into 2020.

Quantity of liquidity during COVID
The x-axis of the bottom chart begins in January 2020 and ends in July 2020. The y-axis has units of billions of dollars; it ranges from 36 to 44, and it has a log scale. There is one solid, red line. This line represents this historical time series of the quantity of liquidity for the period in question (January 2020 through July 2020). It has a very slight downward trend, which much variation obscuring this trend, between January 2020 and June 2020, before recovering in July 2020. There are 5 vertical, black lines; these lines represent events that took place between January 2020 through July 2020. The first event line is labelled, "Stock market peak," and it intersects the x-axis February 19, 2020; the second event line is labelled, "PDCF," for primary dealer credit facility, and it intersects the x-axis March 17, 2020; the third even line is labelled, "P/SMCCF announced," for primary/secondary corporate credit facility, and it intersects the x-axis March 23, 2020; the fourth event line is labelled, "P/SMCCF expanded," and it intersects the x-axis April 9, 2020; and the fifth event line is labelled, "SMCCF starts buying," and it intersects the x-axis May 12, 2020.

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Figure 5: Dealer gross positions, by credit rating and remaining time to maturity

Quantity of liquidity during COVID (credit rating breakdown)
There are two panels, stacked vertically. The x-axis of the top chart begins in January 2020 and ends in July 2020. The y-axis has units of billions of dollars; it ranges from 10 to 50, and it has a log scale. There are two lines. The first line is solid red; it is labelled, IG, for investment grade. The second line is dashed blue; it is labelled, HY, for high yield. The line for investment grade is slightly higher than that for high yield; both lines are relatively flat. There are 5 vertical, black lines; these lines represent events that took place between January 2020 through July 2020. The first event line is labelled, "Stock market peak," and it intersects the x-axis February 19, 2020; the second event line is labelled, "PDCF," for primary dealer credit facility, and it intersects the x-axis March 17, 2020; the third event line is labelled, "P/SMCCF announced," for primary/secondary corporate credit facility, and it intersects the x-axis March 23, 2020; the fourth event line is labelled, "P/SMCCF expanded," and it intersects the x-axis April 9, 2020; and the fifth event line is labelled, "SMCCF starts buying," and it intersects the x-axis May 12, 2020.

Quantity of liquidity during COVID (TTM breakdown)
The x-axis of the bottom chart begins in January 2020 and ends in July 2020. The y-axis has units of billions of dollars; it ranges from 10 to 50, and it has a log scale. There are two lines. The first line is dotted dark green; it is labelled, "less than or equal to five years TTM [time to maturity]." The second line is dashed-dotted goldenrod; it is labelled, "greater than five years TTM [time to maturity]." The dashed-dotted goldenrod line for less than or equal to five years time to maturity is slightly higher than the dotted dark green line for greater than five years time to maturity; both lines are relatively flat. There are 5 vertical, black lines; these lines represent events that took place between January 2020 through July 2020. The first event line is labelled, "Stock market peak," and it intersects the x-axis February 19, 2020; the second event line is labelled, "PDCF," for primary dealer credit facility, and it intersects the x-axis March 17, 2020; the third even line is labelled, "P/SMCCF announced," for primary/secondary corporate credit facility, and it intersects the x-axis March 23, 2020; the fourth event line is labelled, "P/SMCCF expanded," and it intersects the x-axis April 9, 2020; and the fifth event line is labelled, "SMCCF starts buying," and it intersects the x-axis May 12, 2020.

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Figure 6: Evolution of liquidity supply and demand indexes

Historical supply and demand of liquidity
There are two panels, stacked vertically. The x-axis of the top chart begins in 2002 and ends in 2020. The y-axis has units of billions of dollars; it ranges from 10 to 70, and it has a log scale. There are two lines. The first line is solid red; it is labelled, "Supply index." The second line is dashed blue; it is labelled, "Demand index." The solid, red line is consistently above that of the blue line, falling below it only in periods of financial stress. The two lines start at approximately the same height; they diverge in the early 2000's, as the solid, red line steadily increases and the dashed, blue line remains relatively flat. During the financial crisis, in 2008, there is a sharp decline in the solid, red line and a proportionately smaller increase in the dashed, blue line such that the dashed, blue line briefly peaks above the solid, red line. The solid, red line then recovers from its nadir in 2008 and is relatively flat, with nonnegligible variation, until 2020; the dashed, blue line remains relatively flat until 2020, remaining consistently below the solid, red line. In 2020, during the COVID period in markets, The solid, red line sharply declines and the dashed, blue line sharply increases; there is a very brief period in which the dashed, blue line is higher than the solid, red line, but both soon recover, in that the solid, red line increases and the dashed, blue line decreases, and the solid, red line ends the series above the dashed, blue line.

Supply and demand of liquidity during COVID
The x-axis of the bottom chart begins in January 2020 and ends in July 2020. The y-axis has units of billions of dollars; it ranges from 25 to 60, and it has a log scale. There are two lines. The first line is solid red; it is labelled, "Supply index." The second line is dashed blue; it is labelled, "Demand index." The solid, red line begins the series above the dashed, blue line. In March-April 2020, there is a sharp decline in the solid, red line, and a proportionate sharp spike in the dashed, blue line. By May 2020, this has been reversed, and the solid, red line is above the dashed, blue line for the remainder of the series. There are 5 vertical, black lines; these lines represent events that took place between January 2020 through July 2020. The first event line is labelled, "Stock market peak," and it intersects the x-axis February 19, 2020; the second event line is labelled, "PDCF," for primary dealer credit facility, and it intersects the x-axis March 17, 2020; the third even line is labelled, "P/SMCCF announced," for primary/secondary corporate credit facility, and it intersects the x-axis March 23, 2020; the fourth event line is labelled, "P/SMCCF expanded," and it intersects the x-axis April 9, 2020; and the fifth event line is labelled, "SMCCF starts buying," and it intersects the x-axis May 12, 2020.

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