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Fed’s Unlimited Liquidity Stimulus Erases Market Fears

Investors throughout a broad range of asset markets breathed a sigh of relief Tuesday, a day after the Federal Reserve launched unprecedented measures aimed at boosting liquidity and bolstering investor confidence in the face of a spreading coronavirus pandemic.

Fed’s Unlimited Liquidity Stimulus Erases Market Fears

As equities ripped higher around the globe, a string of investment-grade corporations tapped a better-functioning debt market for much-needed money after the Fed’s measures helped ease a logjam that had frozen credit score markets.

The rate at which firms might borrow high-grade, short-term loans mainly decreased, whereas charges for lower-grade paper continued to increase at maturities and modestly reduced at others, in line with Fed data.

The U.S. greenback edged lower against a basket of currencies, while Treasury yields rose, a sign that investor concerns had eased, at the least for the moment. Meanwhile, the Dow Jones Industrial Average marked its best one-day yield since 1933.

Some believe the markets have witnessed the last of the heavy bouts of selling and stretches of illiquidity that have plagued them throughout a month-long selloff that has slammed all the things from equities to oil. Yet Tuesday’s steps had been a potential sign that traders had been giving at least a tentative stamp of approval to the Fed’s unusual interventions of the last week and a possible $2 trillion in fiscal stimulus from the federal government.

Among other indicators of abating tensions, prices on credit default swaps plunged, suggesting that worries about company insolvency was easing. The spread of Markit’s investment-grade credit default swap index – used as a barometer of sentiment concerning the investment-grade market – dropped some 14 basis points Tuesday, indicating that traders had been demanding less of a threat premium to hold the debt.