--- title: "Dimon sounds the alarm on corporate bond liquidity: Low spreads mask collapse risks, and the Federal Reserve may need to intervene again to stabilize the market" type: "News" locale: "en" url: "https://longbridge.com/en/news/276744595.md" description: "JPMorgan Chase CEO Jamie Dimon warned that corporate bonds currently face a sharp decline risk, similar to the situation before the 2008 financial crisis. He pointed out that intense competition and low credit standards have led financial institutions to take on higher risks, credit spreads are close to historical lows, market liquidity providers are decreasing, and the scale of corporate bonds held by ETFs has significantly increased. Dimon cautioned investors to be vigilant about potential collapse risks" datetime: "2026-02-24T13:53:03.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/276744595.md) - [en](https://longbridge.com/en/news/276744595.md) - [zh-HK](https://longbridge.com/zh-HK/news/276744595.md) --- > Supported Languages: [简体中文](https://longbridge.com/zh-CN/news/276744595.md) | [繁體中文](https://longbridge.com/zh-HK/news/276744595.md) # Dimon sounds the alarm on corporate bond liquidity: Low spreads mask collapse risks, and the Federal Reserve may need to intervene again to stabilize the market The Zhitong Finance APP notes that as liquidity providers are increasingly replaced by liquidity takers, corporate bonds are facing a sharp decline risk. JP Morgan CEO Jamie Dimon warned that the current situation bears similarities to the period before the 2008 financial crisis. His concerns are not unfounded, but if investors only look at credit spreads (which are currently close to historical lows), they may not perceive this. Dimon candidly stated at the company's annual investor update: "When everyone is making easy money and performing well... you feel foolish, but it feels great." He continued, "Then when I think about all the factors at play, I take a deep breath and tell myself: 'Be careful!' Unfortunately, we did witness almost the same situation in 2005, 2006, and 2007—when the tide rises, everyone is making big profits. I see some people doing foolish things. They are just doing stupid things to create net interest income." ![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260224/1771939598652148.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) Credit spreads are at historical lows However, as downside risks increase, there is almost no room for further increases in spread levels. Banks and brokers, once the largest "quote providers" in the corporate bond market, have significantly reduced their footprint; meanwhile, "price takers"—most notably exchange-traded funds (ETFs)—are rapidly growing in size. Currently, the amount of corporate bonds held by ETFs exceeds that of U.S. banks by about 25% (or $250 billion). In fact, since 2024, among approximately $16 trillion in circulation, ETFs are the only major sector with an increasing share of holdings. Other sectors that might provide liquidity or seek opportunistic buys after price declines—such as banks, pension funds, and foreign investors—have reduced their market participation. The near "exodus" of banks from the corporate bond market occurred after the financial crisis. This is attributed to the Volcker Rule, which restricts proprietary trading activities, and the enhanced liquidity regulations requiring banks to hold more high-quality liquid assets (HQLA), while the balance sheet costs of holding corporate bonds have also increased. Despite a 70% growth in total corporate bond circulation, the amount of corporate bonds held by brokers/dealers has significantly dropped from over $300 billion during the global financial crisis to between $70 billion and $80 billion currently. ![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260224/1771939584134134.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) The amount of corporate debt held by broker-dealers is decreasing Ten years ago, the amount of corporate bonds held by dealers and brokers was about six times the average daily trading volume, whereas today it barely equals the average daily trading volume. The $1.25 trillion held by ETFs has reached about 25 times the dealer holdings In addition, the corporate bond inventory of primary dealers—i.e., the net position between securities repurchase and reverse repurchase—has recently fallen to nearly zero levels. Why has this become an issue now? This liquidity mismatch has emerged at the same time that bond funds are likely increasing their exposure to corporate bonds (even though their exposure relative to the total has slightly decreased). The surge in U.S. Treasury issuance in recent years has depressed the returns of the aggregate index, prompting funds to buy more high-yield corporate bonds to boost performance. The rise of basis trading leaves traces. The additional exposure of funds to corporate bonds has caused their duration to be too low relative to the aggregate index. To address this issue, they buy bond futures; meanwhile, hedge funds are happy to sell futures, extracting the basis between futures and cash bonds to earn "risk-free" profits (which are not actually risk-free). The increase in bond funds' exposure to corporate bonds also suggests a rising sensitivity to the returns of corporate bonds, even though the weight of such bonds in the aggregate index has remained largely unchanged since 2022. Although spreads have tightened, there is no shortage of potential catalysts that could trigger a sell-off in corporate bonds. Take the $1.8 trillion private credit market as an example. As a well-known risk area with extremely low transparency, there are signs that problems in the industry are brewing following this year's sell-off in software stocks. Business Development Companies (BDCs) account for about 20% of the private credit market, with their largest single exposure in the technology sector, and the vast majority being software companies. Such companies were once seen as highly attractive debtors due to their high profit margins and potential for monopoly or oligopoly in their niches. However, with the recent advancements in programming agent capabilities, the barriers to entry for new companies have lowered, and SaaS businesses may become commoditized, shaking this perspective. Blue Owl Capital may be the "canary in the coal mine." The company halted redemptions for one of its funds, stating that funds would only be returned when it believes market conditions are favorable for disposing of assets. Like bond ETFs, the crux of this issue is another form of liquidity mismatch. The involved funds sell to retail investors, offering quarterly redemptions, but most private credit is held by institutional investors, with funding lock-up periods of four to six years (the average loan maturity). One does not need to be a financial prophet to foresee that this will lead to problems. However, this has not stopped the nascent growth of private credit ETFs, whose total market value has surged from nearly zero to between $1.5 billion and $2 billion in just two years. Any turmoil in the private credit market will quickly spill over into the public credit market through bank loans. Since 2024, U.S. banks have significantly increased their claims against non-bank financial institutions. According to the Bank for International Settlements (BIS), as of July 2025, about 14% of the $1.4 trillion (approximately $200 billion) in such outstanding loans is lent to BDCs. Public credit spreads are also facing pressure from massive investments in AI infrastructure. Due to the increased volatility of individual stocks, they are also facing a brutal awakening. The equity of companies is akin to a perpetual call option on their ability to repay debt When simulating credit risk, investors and traders often use index stock volatility as an input. However, if index correlation (currently quite low) rises, then index volatility may spike even higher and better reflect the increase in individual stock volatility. ![image.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260224/1771939562647946.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) Individual stock volatility is on the rise. Therefore, it is not difficult to imagine the scenario of "deterioration" in the credit market mentioned by Dimon: this could trigger a rush for overweight funds and other holders looking to avoid heavy losses to exit. With almost no "bidders" to stabilize the decline, a sell-off could evolve into a crash. 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