Leveraging transaction data and AI-powered price estimates, we show that index-driven trading—fueled by the rapid growth of investment funds in the corporate bond market—has reshaped market dynamics and liquidity. Whereas intraday trading was once evenly distributed, by the end of 2024, 10% of daily volume occurred within one minute of index closing. Exploiting Bloomberg Index’s closing-time change, we establish the causal impact of indexing. Liquidity improves at closing but declines during the rest of the day, yielding a net gain. Benefits reflect temporal clustering that facilitates dealer inventory management. However, during market stress, liquidity gains weaken or reverse.