The policy responses flood in

Here is the two main things that the Fed’s huge maneuvers yesterday were meant for:

1)We know the Fed has buying $60b per month in T-bills, thus taking supply out of the market. Now with tax season and money coming in, the Treasury typically sells less T-bills and combined with Fed buying, there was literally a shortage of T-bills coming. So the Fed in response yesterday said they would buy less bills and go further out on the curve with their buying. 

2)Money market funds have been buying more 1 yr bills and less much shorter term ones like one month and overnight. They are doing this because they want to lock in more yield ahead of what will likely be more rate cuts next week. Thus, there is less money flowing in the overnight repo market and other very short term parts of the curve so the Fed now ups their presence in those very short term parts of the market.

These steps are not stimulus, they are band aids as the Treasury market has clearly been malfunctioning over the past few days.

The CNN Fear/Greed index closed yesterday at 2 so at least we only have 2 more points to go before it can’t get any lower. //money.cnn.com/data/fear-and-greed/

Germany is repeating today that the fiscal shackles are being taken off and they will spend what they need to spend in order to cushion their economy and that “Germany will put no limit on credit program to help companies” according to their Finance Minister. The Economy Minister also went so far to say that they would temporary take equity stakes in some companies if needed.

We’ll hopefully see today the details of what Pelosi and Mnuchin will announce and Congress will pass.

The BoJ was active buying stocks but admitted that they don’t want to cut rates again. They also offered the market more liquidity. China cut reserve requirements again and Sweden said they will lend up to $50b to its banks.

After an absolutely disastrous week, the Italian MIB index is the standout today with a 14.4% rally after yesterday’s 17% plunge. Italian bond yields are down after the ECB hinted that they would be buying more Italian debt relative to others in the region. Italy we know has taken the same draconian steps the Chinese did but they had no choice. It’s all about flattening the infection curve and buying time to hopefully the antidote called Spring time. Hopefully.