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U.S stocks bounced on Tuesday after the Federal Reserve said it would reinstate a funding facility used during the 2008 financial crisis to get credit directly to businesses and households.

The reintroduction of the so-called Commercial Paper Funding Facility (CPFF) is one of a number of moves by the central bank in recent days to try to counter the adverse economic impact of the coronavirus outbreak, and the resulting turmoil in global markets, by pumping money into the real economy.


“In terms of the additional stimulus report, I think that’s why you’re seeing a pause in the bond market. Yields are starting to rise at least today and that’s providing a little bit of relief. You need to see relief in the bond market and not the panic flight to safety into bonds that we’ve been seeing for the past several days. Once that starts to abate you can hope to have some expectation for a potential rebound in the market.

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“You’re seeing it to some extend in technology names if you look at the QQQ up 6% vs up 4% for the S&P. There’s more interest in the growth names in Nasdaq than there are for others. Primarily we’re seeing relief in the bond market and little bit of relief in the equity market, at least today. We’re far from out of the woods. We haven’t had back-to-back positive days for two weeks. While people are exhaling a sigh of relief given the damage done yesterday I don’t think there’s a great sense of comfort. It’s nice to see today but we need to see some stability at least starting with up two up days in a row.

“Clearly it all will come down to a sentiment shift. Right now the predominant concern is that all the shutdowns of just about everything is going to lead to a recession. We have to see particularly in consumer related names how deep will they go if we go into a recession. Right now the sentiment is being dominated by those fears far outweighing everything else. And until that starts to abate, which should be evident first in the bond market before the equities market, you’re not going to have anything more than a trading bounce like we’re seeing today.


“While the commercial paper funding is important, it doesn’t get at the root of the problem. The economy will gradually get past the problem anyway. The question is are authorities doing all that they can to soften the blow of the social distancing recession? I don’t think we’re there yet. It does require a more direct fiscal package because the problem really isn’t big corporations that may go bankrupt, though that’s certainly part of the problem.

“I do think you actually need bailout money for certain industries or find a way to help these companies … than just freeing up money markets. Beyond that there’s an even bigger problem, which is the number of low-wage workers who will be laid off in the next few weeks, and that’s really the center of this problem. Between the restaurants and entertainment and leisure and food services industries, very broadly, there are 35 million workers.

“These workers for the most part make relatively low wages. If they get unemployment benefits which tend to be based on the last quarter of actual earnings, benefits are only 50% of those earnings usually. They don’t make enough money to make ends meet, there’s going to be a lot of human misery out there. What we need to see is an urgent fiscal package to try to bolster the unemployment benefits for people who are laid off because of this.”


“This is a reaction to the Fed indicating that they will do everything they can to diminish the economic impact of the coronavirus. The question is, will it be enough? We don’t know that yet. One interesting observation is that the sectors that have held up best – consumer staples, utilities – are up the most and the sectors that have been beaten up – industrials, financials, energy – are rallying the least. The market is still very concerned about balance sheets. They’re very much rewarding quality and consistency over anything else.”


“They’re reintroducing the same playbook from 2008….This certainly helps the plumbing of the financial system. The commercial paper market is a large and important market for businesses on a day-to-day basis - publicly traded as well as private. For commercial paper to seize up, that is an ominous sign of bad things to come. I’m pleased that the Federal Reserve is conducting themselves in a similar fashion to 2008 in order to calm, at least at this point, the credit markets a bit.”

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“I would expect additional measures from the Federal Reserve in the coming weeks, things like expanding the type of assets that they would be purchasing…also open-ended QE as well.”


“This is a similar vehicle established in 2008, closing in 2010. There were expectations for this to happen Sunday night, but post-Dodd Frank the Fed needs approval from the Secretary of Treasury which likely took some extra time. It’s a smart move. Not all of what will happen in this pocket of time will be the same as 2008. Much more focus on the corporate market, than banking. But where appropriate, the advantage now is we can stop conditions from getting worse.”


“Yes, it really will aid liquidity. It is a way for high-quality corporates to get term funding during a time when investors want to keep maturities very short because of uncertainty about liquidity needs from their clients’ perspective, whereas issuers would rather be funding on a lengthier time frame. The facility is designed to help meet in between, from the issuers’ standpoint.”

“Liquidity is not really a problem in the shorter end of the commercial paper curve – and even in the longer end of the commercial paper curve. But rates are high, spreads are high and bid asks are high, which is unusual.”

“This should be the answer and the solution. We should see that develop as it starts on Wednesday, and we expect that to continue. We don’t expect it to be a problem after that, but of course, that remains to be seen.”

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