The US Federal Reserve took further action on Tuesday evening to consolidate financial markets by allowing licensed public debt brokers to borrow guaranteed cash against certain stocks, municipal debt and higher-rated corporate bonds.
The Fed said in a statement that the facility “would allow primary dealers to support the functioning of the market and facilitate the availability of credit to businesses and households” in the face of the coronavirus epidemic.
The new facility will offer financing with maturities of up to 90 days from March 20 and will be in place for at least six months. Credit under the new facility for primary dealers would be secured by a “wide range” of high-quality debt, including commercial paper, municipal bonds and stocks. The interest rate applied would be the discount rate of 25 basis points.
The new facility was established with the approval of Steven Mnuchin, the United States Secretary of the Treasury. “The global coronavirus epidemic has contributed to significant volatility in the financial markets,” Mnuchin said in a statement, adding that the move “would help tackle illiquidity, alleviate disruption in financial markets, support the proper functioning of the market and facilitate the availability of credit in the United States. workers and companies ”.
Investors have complained about dysfunctional markets in recent weeks, with the buying and selling of a range of assets, from corporate bonds to US Treasuries, being plagued by problems.
There are 24 primary distributors, including Wall Street giants like JPMorgan Chase and Morgan Stanley, as well as international investment banks like Barclays, BNP Paribas and Deutsche Bank and a few small businesses like Cantor Fitzgerald and Amherst Pierpont Securities.
The announcement comes just hours after the US central bank unveiled other measures to address the tensions that have arisen in the short-term funding markets in the face of widespread financial volatility.
Earlier on Tuesday, he unveiled his most sweeping move to date to shore up U.S. businesses, agreeing to buy commercial paper via a facility last deployed during the financial crisis over a decade ago.
Borrowing costs in the $ 1.1 billion commercial paper market, where companies raise short-term cash, had skyrocketed in recent weeks, causing the market to freeze and prompting apprehended companies to withdraw funds. credit lines from their banks to consolidate their liquidity.
Later Tuesday, the Fed announced that it would further step up its interventions in the repo market, offering up to $ 500 billion in overnight loans twice a day until the end of the week. . It has already committed to injecting trillions of dollars into the repo market, where investors exchange high-quality collateral like treasury bills for cash.
These efforts follow a series of emergency measures promulgated by the Fed on Sunday when the central bank lowered its key policy rate to zero, announced at least $ 700 billion in asset purchases and coordinated actions with d ‘other global central banks to reduce costs. international borrowings through existing swap lines, among other actions.
The US Federal Reserve took further action on Tuesday evening to consolidate financial markets by allowing licensed public debt brokers to borrow guaranteed cash against certain stocks, municipal debt and higher-rated corporate bonds.
The Fed said in a statement that the facility “would allow primary dealers to support the functioning of the market and facilitate the availability of credit to businesses and households” in the face of the coronavirus epidemic.
The new facility will offer financing with maturities of up to 90 days from March 20 and will be in place for at least six months. Credit under the new facility for primary dealers would be secured by a “wide range” of high-quality debt, including commercial paper, municipal bonds and stocks. The interest rate applied would be the discount rate of 25 basis points.
The new facility was established with the approval of Steven Mnuchin, the United States Secretary of the Treasury. “The global coronavirus epidemic has contributed to significant volatility in the financial markets,” Mnuchin said in a statement, adding that the move “would help tackle illiquidity, alleviate disruption in financial markets, support the proper functioning of the market and facilitate the availability of credit in the United States. workers and companies ”.
Investors have complained about dysfunctional markets in recent weeks, with the buying and selling of a range of assets, from corporate bonds to US Treasuries, being plagued by problems.
There are 24 primary distributors, including Wall Street giants like JPMorgan Chase and Morgan Stanley, as well as international investment banks like Barclays, BNP Paribas and Deutsche Bank and a few small businesses like Cantor Fitzgerald and Amherst Pierpont Securities.
The announcement comes just hours after the US central bank unveiled other measures to address the tensions that have arisen in the short-term funding markets in the face of widespread financial volatility.
Earlier on Tuesday, he unveiled his most sweeping move to date to shore up U.S. businesses, agreeing to buy commercial paper via a facility last deployed during the financial crisis over a decade ago.
Borrowing costs in the $ 1.1 billion commercial paper market, where companies raise short-term cash, had skyrocketed in recent weeks, causing the market to freeze and prompting apprehended companies to withdraw funds. credit lines from their banks to consolidate their liquidity.
Later Tuesday, the Fed announced that it would further step up its interventions in the repo market, offering up to $ 500 billion in overnight loans twice a day until the end of the week. . It has already committed to injecting trillions of dollars into the repo market, where investors exchange high-quality collateral like treasury bills for cash.
These efforts follow a series of emergency measures promulgated by the Fed on Sunday when the central bank lowered its key policy rate to zero, announced at least $ 700 billion in asset purchases and coordinated actions with d ‘other global central banks to reduce costs. international borrowings through existing swap lines, among other actions.