U.S. monetary policy significantly impacts sovereign credit risk and financial intermediaries play an important role. Using market-based measures of intermediary stress and confidential dealer-country-level sovereign CDS positions, we show that a decline in intermediary risk-taking capacity prior to FOMC announcements amplifies the sensitivity of sovereign spreads to U.S. monetary policy shocks. A general equilibrium model of the world economy explains these findings through occasionally-binding intermediary borrowing constraints that magnify sovereign default risk movements. The model suggests that credit spread movements in response to monetary policy are driven by an intermediation premium, which creates spillovers to both low and high-risk countries.