The investment grade (IG) market grew fivefold between 2006 and 2023, while the balance sheets of IG market makers shrunk during that period. This increased the sensitivity of credit spreads to liquidity.
During the same period, more liquid Fixed Income products, like treasuries and mortgages, have much smaller increases in volatility. This is because a higher fraction of market makers’ balance sheets is committed to providing liquidity in those assets. Market makers prefer those higher quality assets.