U.S. markets close in 6 hours 5 minutes

Fed's big move could help U.S. Treasury liquidity, but effects may not last long

By Gertrude Chavez-Dreyfuss
1 / 2

Fed's big move could help U.S. Treasury liquidity, but effects may not last long

FILE PHOTO: Picture illustration of a test tube labelled with the coronavirus is seen in front of U.S. dollar banknotes

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The Federal Reserve's unparalleled steps to directly backstop the U.S. economy and its willingness to purchase vast sums of U.S. government debt, mortgage-backed securities and even corporate bonds could help boost depleted liquidity in the $17-trillion Treasury market.

But the disastrous impact of the runaway coronavirus on financial markets will continue to impair price-making in Treasuries even if the Fed buys the entire U.S. debt market, analysts said, as bond investors fret about a steep economic downturn that is sure to come.   

Liquidity in Treasuries has thinned in recent weeks, leading to sharp price movements. The Fed began stepping in with a rate cut in early March, followed by increasingly drastic measures to bolster market conditions.    

On Monday, it announced programs that represent a never-before-seen intervention by the central bank into the heart of the "real" American economy. For the first time, the Fed will back purchases of corporate bonds, backstop direct loans to companies and "soon" will roll out a program to get credit to small and medium-sized business.    

The Fed will also purchase Treasuries and agency mortgage-backed securities in the amounts needed to support the smooth functioning of the U.S. debt market. It previously announced it would buy at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities.   

"This creates a buyer of last resort for a lot of the securities and takes a lot of pressure off dealers' balance sheets, which already have been full," said Gennadiy Goldberg, senior rates strategist, at TD Securities in New York.    

Treasury yields fell on Monday, with the two-year yield <US2YT=RR> falling to a seven-year low, as investors kept buying safe-haven government debt.   

The announcement eased liquidity pressures a little bit on Monday, analysts said, but that is not a sign things will function smoothly going forward.   

"Liquidity will improve together with everything else," said Patrick Leary, chief market strategist, at broker-dealer Incapital.   

"This is one of those things that will take time to happen. As the virus goes, as the stock market goes, as the credit market goes, the more that people feel that they're able to get the liquidity they need in the marketplace, their liquidity needs will diminish," he added.   

Pockets of illiquidity persisted on Monday, especially in older Treasuries, called off-the-runs, which make up the bulk of the outstanding debt.    

This segment of the Treasury market has been problematic the last couple of weeks because liquidity dried up there on fears of the pandemic escalating.   

Leary said the bid-ask spread for off-the-run Treasuries was around six ticks. Under normal circumstances, that spread should be a lot lower.   

That said, Jim Vogel, senior rates strategist at FHN Financial in Memphis, Tennessee, did see "initial signs of positive results near the end of last week."   

He cited a market indicator of liquidity that measures the yield changes in Treasuries, compared with the yield changes in derivatives. That gauge on Monday suggested some liquidity is opening up, Vogel said.   

The Fed's presence in the Treasury market over the last week has been unprecedented, purchasing 55% of the $500 billion in Treasuries it has committed to buy. Its purchases were higher than the average daily pace observed during the Fed's quantitative easing from 2009 to 2014, JP Morgan said in a research note on Monday.   

Despite Fed buying of Treasuries, JP Morgan said market depth barely increased, and remains at the lowest levels since year-end 2008.    

"Ultimately you still have the risk that as you shut down 40% of the economy and more going down every day, this cannot go on forever," said Stan Shipley, fixed income strategist at Evercore ISI in New York.

"But this (latest Fed move) provides several months of room for us to win the battle against the virus."


(Reporting by Gertrude Chavez-Dreyfuss in New York; Editing by Alden Bentley and Matthew Lewis)

  • U.S. senators scrutinize meat packers' big profits during pandemic
    Business
    Reuters

    U.S. senators scrutinize meat packers' big profits during pandemic

    U.S. senators are calling for investigations of record profit margins for beef processors like Tyson Foods and Cargill, after ranchers complained surging meat prices due to coronavirus hoarding did not translate into higher cattle prices. Futures prices for cattle have tumbled during the outbreak, worrying farmers as the U.S. economy heads into a downturn and fueling questions about whether the market run by CME Group is an effective tool for risk management. Senator Charles Grassley of Iowa wrote on Twitter that U.S. Department of Agriculture, Department of Justice and Commodity Futures Trading Commission probes may be needed to determine why ranchers did not benefit from soaring meat demand.

  • Coronavirus stock market rally triggers the dreaded 'death cross'
    Business
    Yahoo Finance

    Coronavirus stock market rally triggers the dreaded 'death cross'

    The last thing beat-up investors want to see right now is an often dreaded technical formation in the markets. Yet, that's where we are after the S&P 500 has rallied hard off the lows achieved a week ago. For the first time in over a year, the S&P 500 is seeing its 50-day moving average cross below its 200-day moving average (see Yahoo Finance chart below) points out SunDial Capital Research.

  • Ready to buy back into this market? If so, forget about Apple and grab these stocks instead, strategist says
    Business
    MarketWatch

    Ready to buy back into this market? If so, forget about Apple and grab these stocks instead, strategist says

    The market is utterly underestimating how much of a shock the coronavirus is going to be to the economy. And I think for the next 12 months, the U.S. consumer is only going to spend his money or her money on [nondiscretionary] goods. So, within that basket, I think you have to let Apple go.

  • Top Fund Manager Says These Stocks Should Soar In The Next Market Rally
    Business
    Investor's Business Daily

    Top Fund Manager Says These Stocks Should Soar In The Next Market Rally

    Chip Reed is a mutual fund manager who winces at the widespread pain and suffering caused by the coronavirus stock market crash. But he also sees the coronavirus crash as setting the table for the sort of rally mutual fund shareholders dream of. "The pain isn't lost on anybody," said Reed, a manager of $11.7 billion Eaton Vance Atlanta Capital SMID-Cap Fund (EISMX).

  • Is Inovio Pharmaceuticals, Inc.'s (NASDAQ:INO) CEO Pay Fair?
    Business
    Simply Wall St.

    Is Inovio Pharmaceuticals, Inc.'s (NASDAQ:INO) CEO Pay Fair?

    J. Kim became the CEO of Inovio Pharmaceuticals, Inc. (NASDAQ:INO) in 2009. This analysis aims first to contrast CEO compensation with other companies that have similar market capitalization. The aim of all this is to consider the appropriateness of CEO pay levels.

  • Challenging Times Ahead for Boeing Stock; 5-Star Analyst Slashes Price Target
    Business
    SmarterAnalyst

    Challenging Times Ahead for Boeing Stock; 5-Star Analyst Slashes Price Target

    It has been a rollercoaster month for investors of beleaguered airline Boeing (BA). Despite the profit potential, the analyst can't quite see his way clear to actually recommending "buying" BA stock, assigning the shares only a "neutral" rating. Questions have been raised concerning Boeing's financial health, following a request for $60 billion in federal aid to assist its ailing ecosystem.

  • Business
    MarketWatch

    Tesla target lowered at JMP after analyst makes cut to delivery estimates

    JMP Securities analyst Joseph Osha lowered his price target on shares of Tesla Inc. to $840 from $1,060 on Tuesday, though he maintained a market outperform rating on the stock. Osha also reduced his 2020 delivery estimates to 433,000 units from 523,000, citing a negative impact from the COVID-19 outbreak. Osha expects "sharp gross margin declines" in the first half of the year and assumes that while the company's labor costs will decline, Tesla won't take "any more dramatic action" to trim its fixed costs.

  • Barrack Says Real Estate Collapse Will Take Hold in April
    Business
    Bloomberg

    Barrack Says Real Estate Collapse Will Take Hold in April

    Real estate billionaire Tom Barrack, Colony Capital's chairman, founder and chief executive officer, talks about the state of the commercial mortgage market and if the Federal Reserve is doing enough to help it. He speaks to Erik Schatzker on "Bloomberg Markets."

  • Business
    MarketWatch

    Amarin's stock plummets on heavy volume after court rules in favor of makers of generic Vascepa

    Shares of Amarin Corp. PLC (amrn) took a 69% dive on heavy volume in premarket trading Tuesday, after drug maker announced a disappointing court ruling in its patent litigation against two generic companies regarding Vascepa, its Food and Drug Administration-approved treatment of cardiovascular disease. Trading volume ballooned to over 10 million shares ahead of the open, which is already more than the full-day average of 9.6 million shares. Amarin said late Monday that the U.S. Distric Court for the Distric of Nevada ruled in favor of the generic companies.

  • Paying $4.79 a Gallon, California Didn’t Get the Cheap Gas Memo
    Business
    Bloomberg

    Paying $4.79 a Gallon, California Didn’t Get the Cheap Gas Memo

    As crude oil prices have tanked, depressed by the coronavirus pandemic and the market-share war between Saudi Arabia and Russia, at least a dozen service stations in the Golden State were charging more than $4 as of Monday, according to the tracker GasBuddy. One unnamed location in Santa Clara, near the heart of Silicon Valley, was demanding the most that GasBuddy's research found in the state: $4.79. According to AAA, only Hawaii had higher average prices than California, at $3.36 versus $3.06.

  • Audacious Chinese coffee chain Luckin, not content with its quixotic battle against Starbucks, dreams of becoming Amazon, too
    Business
    MarketWatch

    Audacious Chinese coffee chain Luckin, not content with its quixotic battle against Starbucks, dreams of becoming Amazon, too

    The Chinese startup that has reshaped the coffee sector here, wiping away Starbucks' dominance in the country, is leaping into an untraditional foray — one that is sure to perpetuate questions about its long-term strategy. Nasdaq-listed Luckin Coffee (LK) came out of nowhere in 2017 and swiftly ate into Starbucks' (SBUX) domination of China sales, with its intuitive mobile app, ubiquitous grab-and-go stores, and discounts so deep that they have frustrated some investors. One conspicuous example of Luckin's cutthroat strategy was the building of hundreds of its stores within mere meters of existing Starbucks locations, often right next door.

  • Carnival Cruise Lines Seeks to Borrow $3 Billion
    Business
    Bloomberg

    Carnival Cruise Lines Seeks to Borrow $3 Billion

    Carnival said it also plans to raise $1.25 billion by issuing common shares and another $1.75 billion through the sale of convertible notes to improve its liquidity position. President Donald Trump asked Carnival and other major cruise line operators to stop sailing this month after a series of coronavirus outbreaks at sea raised concerns about the safety of the industry. While Carnival is still rated investment grade by Moody's Investors Service and S&P Global Ratings, its existing unsecured bonds have been trading at distressed levels in recent weeks.

  • Profit Will Soon Double (Or More) At 11 Companies, Analysts Say
    Business
    Investor's Business Daily

    Profit Will Soon Double (Or More) At 11 Companies, Analysts Say

    Corporate profit is all but certain to drop in the first quarter as the coronavirus shuts America down. But analysts still think profit will double or more at some S&P 500 companies. Double profit?

  • Mall Owner Taubman To Tenants: Pay Your Rent
    Business
    Benzinga

    Mall Owner Taubman To Tenants: Pay Your Rent

    The real estate investment trust wrote in a March 25 memo obtained by CNBC that the rental income it receives from tenants is "essential" for it to meet its own financial obligations, like paying lenders on mortgages and utility expenses. The Taubman memo reportedly said "all tenants will be expected" to stay true to their original lease obligations, despite financial difficulties related to the coronavirus. So far, restaurant chain Cheesecake Factory Inc (NASDAQ: CAKE) is the most notable national mall tenant to confirm it won't pay rent in April, although the company said it is in various stages of discussions with its landlords.

  • How Much Did AGNC Investment Corp.'s (NASDAQ:AGNC) CEO Pocket Last Year?
    Business
    Simply Wall St.

    How Much Did AGNC Investment Corp.'s (NASDAQ:AGNC) CEO Pocket Last Year?

    In 2016 Gary Kain was appointed CEO of AGNC Investment Corp. (NASDAQ:AGNC). This analysis aims first to contrast CEO compensation with other companies that have similar market capitalization. According to our data, AGNC Investment Corp. has a market capitalization of US$6.3b, and paid its CEO total annual compensation worth US$16m over the year to December 2019.

  • California Gov. Gavin Newsom Says Federal Government Sent '170 Broken Ventilators'
    U.S.
    Meredith Videos

    California Gov. Gavin Newsom Says Federal Government Sent '170 Broken Ventilators'

    California Gov. Gavin Newsom said Saturday that the federal government had sent the state “170 broken ventilators,” which can be key to treating the respiratory distress caused by COVID-19.

  • Nightmare Haunting Euro Founders May Be a Reality With Italy
    World
    Bloomberg

    Nightmare Haunting Euro Founders May Be a Reality With Italy

    The longstanding suspicion that Italy's profligate borrowing could ultimately become the whole of Europe's problem was the recurring nightmare of German finance officials throughout the 1990s. Now, as the crisis forces Giuseppe Conte's government to jettison a decade of tightly capped Italian budget deficits, the country's strategy for the future is once again built on piling up debt, sending its public borrowings swelling toward or even beyond 150% of gross domestic product. The upshot is that Italy's finances now depend wholly on the European Central Bank keeping a lid on its borrowing costs.

  • JPMorgan: These 3 Stocks Are Poised to Surge by at Least 35%
    Business
    TipRanks

    JPMorgan: These 3 Stocks Are Poised to Surge by at Least 35%

    JPMorgan's Global Quantitative and Derivatives Strategy team, led by Marko Kolanovic, has been crunching the numbers on the coronavirus pandemic, and found that the forecasts can vary wildly, with predicted economic declines ranging from 20% to 70%, depending on which data the analyst chooses to start with. The JPMorgan report does offer a ray of hope: because the hospital numbers are a lagging indicator, it is possible that the social containment measures have taken hold and brought us closer to the inflection point – and that infection rates will soon start declining. Kolanovic writes, “Taking into account the unprecedented monetary and fiscal measures being implemented, as well as unprecedented asset declines over the past month, we maintain that asset price recovery is likely and our pre-pandemic equity price target for 2020 is achievable sometime in the first half of 2021.”

  • If stocks are headed higher, these underperformers are worth a look, says Jefferies
    Business
    MarketWatch

    If stocks are headed higher, these underperformers are worth a look, says Jefferies

    The appeal is that those names aren't heavily owned by hedge funds, but rather long-only investors, who would expect those stocks to appreciate. The strategists also zero in on the role they believe hedge funds played in the recent market meltdown. DeSanctis and Lockenvitz say those hedge funds will likely start crowding back into their “tried and true” favorites — such as Microsoft (MSFT) Google-parent Alphabet (GOOGL) Facebook (FB) Visa (V) Amazon.com (AMZN) Mastercard (MSFT) Disney (DIS) Union Pacific (UNP) and more.

  • Business
    Bloomberg

    Trump and Putin Are All Talk on Oil Price Plunge

    According to the Kremlin, energy officials from the U.S. and Russia, the world's first and third-largest oil producers, will hold discussions — although they didn't elaborate on what they might cover. Trump has become the master of the empty photo-op, most notably with North Korea's Kim Jong Un. In the energy sector, points of contention between the two men include Russia's role in Venezuela's oil export trade; U.S. sanctions on Russia's oil and gas industries, including those targeting the second Nord Stream gas pipeline from Russia to Germany and others that have prevented foreign investment in Arctic oil and gas projects; and Russia's own nascent shale sector.

  • Is Tesla Stock A Buy Right Now? Here's What Earnings, Charts Show
    Business
    Investor's Business Daily

    Is Tesla Stock A Buy Right Now? Here's What Earnings, Charts Show

    Tesla stock has plunged as the coronavirus pandemic has led to a sharp drop in consumer spending and rising unemployment as factories are shut down worldwide. Tesla announced on March 19 that it would also close its car manufacturing plant in California. The disruption to Tesla caused by the Covid-19 pandemic could be revealed later this week if the electric-car company reports data on first quarter vehicle deliveries as expected.

  • 7 Safe Dividend Plays For 2020
    Business
    Benzinga

    7 Safe Dividend Plays For 2020

    Unable to cough up cash to meet dividend payments at a time when businesses are reeling to keep operations going, several companies have announced suspension of dividends or pauses of stock buybacks. To compare the returns of a stock, a metric called dividend yield is used. Dividend yield is the amount of dividend paid by a company for a year, divided by its current stock price and expressed in percentage terms.

  • Business
    Bloomberg

    Larry Fink Sees Economy Recovering From Virus But Forever Transformed

    The pandemic that swept through nations across the globe this year is causing people to re-evaluate “just-in-time” supply chains and dependence on air travel, Fink wrote in his annual letter to shareholders dated Sunday. “In my 44 years in finance, I have never experienced anything like this,” Fink wrote, adding that “as dramatic as this has been, I do believe that the economy will recover steadily, in part because this situation lacks some of the obstacles to recovery of a typical financial crisis.” The spreading coronavirus has infected more than 780,000 people and prompted cities across the world to lock down, threatening deep recessions that will push households and companies to the brink.

  • Amazon Fires Worker Who Led Strike Over Virus
    Business
    Bloomberg

    Amazon Fires Worker Who Led Strike Over Virus

    “Taking action cost me my job,” Smalls said Monday in a Bloomberg TV interview. A group of workers at the Staten Island fulfillment center walked off the job Monday to demand Amazon close the facility for extended cleaning, the latest in a wave of virus-related protests. In a statement Monday night, New York State Attorney General Letitia James called Smalls' firing “immoral and inhumane.”

  • Business
    MarketWatch

    Nvidia target lifted at Susquehanna as supply-chain issues are resolved

    Susquehanna analyst Christopher Rolland increased his target price on shares of Nvidia Corp. (NVDA) Tuesday to $330 from $320 Tuesday, writing that the company's "supply constraints have (basically) been alleviated" but that there is still uncertainty about the timing and ramp schedule of the chip company's 7-nanometer products. "Contacts believe that Nvidia may be strategically waiting for AMD's (AMD) launch of Navi 2X before announcing their new 7-nanometer gaming cards." Nvidia shares are up 0.5% in Tuesday trading.