We develop a two-asset search-and-bargaining model of OTC trading to estimate frictions and welfare losses in the UK government and corporate bond markets. Using transaction-level data and a matched client sample, we find that both trading delays and intermediation frictions are more pronounced in corporate bonds. Welfare losses due to these frictions are 2.4% in government bonds and 5.0% in corporate bonds—driven primarily by trading delays. Using data from the COVID-19 crisis, we find that these losses might more than double during turbulent times, revealing the fragility of the OTC market structure.