Fed Restarts Commercial Paper Facility
Bloomberg reports Fed Restarts Commercial Paper Facility to Ease Market Strain
The central bank is using emergency authorities to establish the Commercial Paper Funding Facility with the approval of the Treasury secretary, according to a Fed statement on Tuesday. The Treasury will provide $10 billion of credit protection from its Exchange Stabilization Fund.
The move follows mounting pressure to act after the Fed’s Sunday evening emergency interest-rate cut to nearly zero and other measures failed to stem market strains as investors reacted to the risk that the virus will tip the U.S. and global economy into a potentially damaging recession.
“By providing short-term credit, the CPFF will help American businesses manage their finances through this challenging period,” Treasury Secretary Steven Mnuchin said in a separate statement.
The Fed said it will provide financing to a special-purpose vehicle that will purchase A1/P1 rated commercial paper from eligible companies, and purchases will last for one year unless the Fed extends the program.
Fed Announces Yet Another $500 Billion Repo
In other news, the Fed announced another $500 billion in repos. That puts announced repos at the $2.5 trillion level.
Bond Market Remains Broken
Despite these emergency measures, the Treasury market remains broken.
The 10-year treasury yield rose again by 11 basis points to 0.838%.
The 30-year long bond yield rose 9 basis points to 1.417%.
And the 5-year treasury yield rose to 6 basis points to 0.556%.
Mike “Mish” Shedlock
Mish, isn’t Powell doing everything he can to save the TBTF banks (covert owners of the FRBOG ?) from bankruptcy and making it look like the Fed is trying to stabilize the economy ?
Ref. https://ppjg.me/2020/02/19/federal-reserve-transparency/
Even though I was never a big fan, watching the dollar die still makes me sick.
The Fed just isn’t pushing hard enough on that string! Come on Fed, keep pushing harder, eventually something will happen. Or not.
The brings a knife to a gunfight.
CPFF
How many more cans of alphabet soup is the FED going to open?
The only thing which was ok in US before the coronavirus : assets gigantic inflation.
In 2019 stock markets rose more than 20 PER CENT. Trump has no natural knowledge in coronavirus but he has a fondamental expertise in playing game for money rules (trough his casinos background).
The real economy producing goods and services was in recession already but the 2019 enormous influence of assets inflation on GDP and the hidden inflation gave positive numbers. When a country print money (and scandalously promote out of proportion assets inflation) the first result it gets is very positive that is full employment.
It is probable that after the virus production wealth destruction victims would have been refunded by FED printing press and government deficit spike, a quick recovery would happen as was the case in 1987, 2000, 2008. This time the FED balance sheet will pass over the one trillion mark and the US debt will rise another 20-30 per cent of and the interest rate will be maintained around zero.
The middle class American will like before (1987, 2000, 2008) again loose another part of their living standard level while the billionaires will be made even.
The only black swan which would destroy QE to infinity is the value of the dollar that is the confidence peoples working to supply US with almost now everything manufactured (like China) will maintain or not in such a fiat printed money.
All these measures will prevent mass unemployment unlike the 2007-2009 financial crisis. The economy was ok before coronavirus growing at 2-3%. During the great financial crisis the Fed and Treasury actually responded too late. We may get a deep recession but I expect a V-shaped recovery after mid-late summer. Despite what many may see as another financial crisis, it isn’t going to happen. Don’t be surprised if China lifts up the world as production comes back online as they recover from Covid-19 first. Also it looks like protocols with the HIV antivirals and anti-malaria medication seem to have some positive results in southeast Asia and Australia as they did with previous coronaviruses in SARS and MERS. Those medicines may be become crucial soon for the world.
“We may get a deep recession but I expect a V-shaped recovery after mid-late summer.”
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Huh?
Last recession lasted 19 months …. and there never was a V – recovery. So, we’re going to get a deep recession lasting 6 months AND a V – recovery … even though country / globe under massively higher debt burden than 2009?
The balance sheets of banks are actually in much better shape than the previous crisis. I wasn’t talking about the last recovery. That was definitely not a V. This isn’t going to take 8 years to get back to full employment or 2-4% GDP. There is certainly less systemic risk to a financial crisis now than before 2009. We have institutionalized TARP and other mechanisms. The Fed and government cannot have the market blow up. They will bail it out until the economy gets healthy again.
“They will bail it out until the economy gets healthy again.”
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Econony will never get healthy with continual bailouts. Mal investments / bad debts need to be purged.
Deflation on tap. Not Happy Days.
Tony, you are correct, free money doesn’t create a healthy society. But what we should be concerned over once we hit March-April 2021, and we finally see light at the end of this tunnel, what new crisis will the largest shift of money from risk off to risk on do to world finances?
Central banks and treasuries around the world are going to bail out everything. We are effectively like China or Russia or some other centrally managed financial system.
I agree. I believe the world will soon see demonstrated how a communist government, flush with 40 years’ trade with capitalism, deals with a trillion in bad debt.
Many options are open, as a government, when you are the bank and your survival depends on economic recovery.
It is just going to be Modern Monetary Theory by a different name. It isn’t a communist government but a central bank is a communist principle. Debt will be written off. Maybe the people who said government debt doesn’t matter were right.
I have a bridge to sell you if you are interested?
While I do think a U shaped recovery is possible, I question V. Are you asserting that this winter there will be vaccines or treatments widely available to prevent this Pandemic from getting severe with a 24 week opportunity for compounding victim leverage? Shift your timeline to March-April of 2021 and I think it may come true.
There are signs that existing medicines can work to not only limit the damage but save lives. I’m not sure how we define V vs U but I think we will see signs by late summer that we have Covid-19 on the run and not the other way around. Things will get back to normal by late September.
“Bond Market Remains Broken”
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And will probably remain that way until the excess leverage in the risk parity funds wrung out. Max Pain all around.
“The Fed keeps trying things hoping that something will stick.”
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Yes. And throw in fiscal stimulus du jour.
Sit back and count the half life of THIS measure.
Mr Market does not like half measures (or even full measures, heh heh).
Not to be facetious, but is there some sort of trickle-down-effect to this?