Attitudes Improve After Fed Announcement

This morning’s announcement by the Federal Reserve that it would be buying an unlimited amount of bonds in order to keep borrowing costs low and liquidity high has lifted the spirits of market participants everywhere. The Fed will buy Treasuries and agency-issued mortgage-backed securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy” according to today’s statement. The central bank also said it would be buying commercial MBS. Also announced were the establishment of the Primary Market Corporate Credit Facility for new bond and loan issuance along with the Secondary Market Corporate Credit Facility to provide liquidity to the corporate bond marketplace. Also announced were plans to expand the existing Money Market Mutual Fund Liquidity Facility and also its Commercial Paper Funding Facility. Also in the works is a Term Asset-Backed Securities Loan Facility that will enable the issuance of securities backed by student loans, auto loans, credit card loans, and SBA guaranteed loans. Additionally, this morning announcement included a reference to the creation of a Main Street Business Lending Program to support small businesses. The Fed is pulling out all the stops. Meanwhile, Congress failed to agree on the details of a massive support program over the weekend while negotiations continue this morning. Equity markets are poised to open higher while bond prices edge down. With the Two-Year yielding around 30 basis points, the Long Bond at 1.50%, the Ten-Year sits in the middle at around 85 basis points.