We develop a dynamic model of an over-the-counter (OTC) market where risk-averse dealers face capital constraints and interdealer search frictions. In contrast to existing search models, the distribution of asset holdings across intermediaries determines asset prices. In equilibrium, the asset price is uniquely determined by the mean and variance of inventory within the dealer sector. An increase in dealer risk aversion causes average dealer inventory to grow, while the dispersion of inventory and the asset price fall. Our theoretical results are validated using transaction-level data from the OTC market for corporate bonds. Illiquidity in the interdealer market and high dealer risk aversion are associated with wider credit spreads and worsened market liquidity, an effect that is monotonically stronger for riskier bonds and during periods of dealer stress. Our results contextualize dealer participation and asset pricing in OTC markets after the implementation of bank capital regulations.