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Happy Easter from the Fed

09 April 2020 by jbchevrel

The Fed’s ‘whatever it takes’ approach supported CDS indices, esp. in the US, both in outright terms and vs other CIS. Not sure that the new measures will support the real economy as much as it supports asset prices, but anyway. The Fed demonstrates that it remains flexible. The size of their measures much exceeds the ones of the ECB. Today’s measures are indeed large, amounting to supporting up to $2T+ new lending (incl. $600B in ‘Main Street lending’ / $850B increase in corp. bond + TALF / $500B of support for munis). The Fed’s balance sheet expansion contrasts with the one of the ECB, as far as the pace. Indeed, for reference, ECB’s new buying amounts to ~€35B/week, in addition to ECB’s TLTRO lending. The Fed’s new measures are new because 1/ including some purchases of HY as part of its purchases of credit ETFs 2/ buying loans in its ‘Main Street lending’ scheme. This shows how the Fed is flexible to respond to any stress in any market, really. Compared to the ECB, the Fed was quick to shift from rates and govies buying to taking on proper credit risk, although one may argue that some € govies are proper credit risk…… The Fed’s measures were taken after Treasury invoked Article 13 indicating that the Fed and Treasury are closely coordinating, a major advantage relative to the Eurozone and the larger 1/ monetary 2/ fiscal stimulus in the US supports a quicker recovery there. Déjà vu. Happy Easter.