I don't think there's a real problem here, except for forced sellers - I would pity an investor who is forced to liquidate a corporate bond portfolio because of

I don't think there's a real problem here, except for forced sellers - I would pity an investor who is forced to liquidate a corporate bond portfolio because of a margin call. But liquidity risk (especially in the corporate bond market) isn't exactly news to anybody. Liquidity for US Treasuries may well be lower because the Fed's taken so many of them onto its balance sheet[1] but I don't think that a lack of liquidity is going to pose a real problem in that market. There's a difference between a market that's dislocated (by which I mean that the market price has deviated from the "real" value of the asset) due to a structural problem (like a lack of liquidity), and a market that has reached its peak (and/or is overvalued, and is undergoing a correction - which may be happening in Europe at the moment[2]). People get all excited about flash crashes and talk about billions of dollars being wiped off the value of whatever but it's complete horseshit. Just because a few trades happen at an unreasonable price because of a technical hiccup (or because of some strange, unforeseen interaction between different automated systems) doesn't mean that the underlying value of the asset in question has changed. If a share starts the day at $100, dips to $1 because of a flash crash, then recovers to $100, what has really changed? A few people may have made/lost money by being lucky/unlucky enough to have traded at an incorrect price (e.g. because a stop-loss got triggered or something) but other than the appearance of an icicle-shaped spike on a chart, it's just noise (and if you have a system which reacts to noise, then the problem lies with your system, not the market). Personally, I think the bond market has been propped up by "quantitative easing", which has, in turn, inflated the equity markets. At some point, that situation has to undergo a correction and that could well manifest itself as a crash if everyone dashes for the exit at the same time. But that's the nature of markets - they fluctuate, sometimes wildly. 1: https://research.stlouisfed.org/fred2/series/TREAST https://research.stlouisfed.org/fred2/series/TREAST 2: http://www.ft.com/cms/s/0/3722d4a0-0a63-11e5-82e4-00144feabdc0.html http://www.ft.com/cms/s/0/3722d4a0-0a63-11e5-82e4-00144feabd...