Weekly Market Snapshot – March 16th, 2020
- The Federal Reserve called an emergency meeting Sunday, March 15th, to lower the federal funds interest rate. The rate was cut from 1.25-1.00%, to 0.25%-0.00%, reducing it 1%. This is the single largest emergency rate cut in the Federal Reserve’s history.¹
- During this emergency meeting the Federal Reserve also initiated their 4th Quantitative Easing program, offering 700 billion dollars in long term liquidity for banking institutions holding government bonds. The Quantitative Easing program was developed after the subprime crisis in 2008 as a method of adding liquidity into the banking system while keeping asset values and interest rates stable. If you’ve been following along with our blogs we’ve noted before that restarting QE was an inevitable conclusion to the Fed’s repo operations given the lack of liquidity in the market. In our private research Quarter 4 of 2019 was the timetable we were expecting for them to fully restart QE programs, at which point the market was still reacting bullishly to any stimulus offered by the Fed. Given current market conditions however investors have been reacting negatively to stimulus now, likely because they interpret it as further confirmation of ongoing stress in the markets.²
- The yield curve for US treasuries has fully un-inverted on every time frame now. While longer duration treasury yields are still deeply depressed, all treasuries have performed well in current market conditions, but there is more risk in holding longer duration treasuries going forward.³
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