The paper investigates the complex interplay between monetary policy, firm financial health, and credit market dynamics. Using credit default swap (CDS) data, we demonstrate that financial constraints modulate the magnitude of CDS spread responses and fundamentally shape the temporal pattern of these reactions and associated trading activities. Our findings reveal a stark dichotomy: financially constrained firms exhibit pronounced, immediate CDS spread expansions following monetary policy surprises (MPSs), while unconstrained entities display more subdued yet persistent reactions over extended event windows. More importantly, we unveil the underlying mechanism by uncovering a nuanced dynamic in trading volumes, where constrained firms experience a significant, short-term decrease in CDS market depth post-policy tightening, contrasting sharply with the resilient trading volumes of unconstrained firms. Our discoveries imply that monetary policy may have unintended distributional effects, potentially exacerbating financial fragilities for constrained firms while having more gradual, persistent impacts on unconstrained entities.