Our finding is consistent with some recent, substantial volatility in the U.S. corporate bond market and leaves open a possibility that additional, future shocks to default premia may have long-lived effects.

Given the size of the underlying markets, cutting the cost of capital to firms and households by reducing the yields required on long-term corporate bonds and mortgages is a key policy objective.

Large-scale asset purchases may have limited power to raise TIPS-implied inflation expectations—something that might appeal to policymakers fighting deflation.