America take note THERE are Rumors that Treasury has Told J Powell that they are prepared to Back Stop the FED's Tidal Wave of Liquidity.........Which Once again transfers the Liabilities if this Fricking FAILS to the American Taxpayer!!!!!!!!!!!!!!!
Lehman Playbook Is Back: Fed Announces Bailout Of Commercial Paper Market - Here's The Bad News by Tyler Durden ZeroHedge
It was supposed to be announced late on Sunday (recall "Fed Expected To Announce CP Bailout Facility Within Hours Or Risk Money Market Panic"), but instead Powell hoped that the bazooka of QE/ZIRP/FX swaps would be sufficient to ease the funding panic. It wasn't, and instead, with a 2-day delay, moments ago the Fed announced that, just as we reported earlier, it will establish a Commercial Paper Funding Facility (CPFF) - the same facility that was unveiled during the last financial crisis - "to support the flow of credit to households and businesses."
As the Fed explains...
Commercial paper markets directly finance a wide range of economic activity, supplying credit and funding for auto loans and mortgages as well as liquidity to meet the operational needs of a range of companies. By ensuring the smooth functioning of this market, particularly in times of strain, the Federal Reserve is providing credit that will support families, businesses, and jobs across the economy. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase unsecured and asset-backed commercial paper rated A1/P1 (as of March 17, 2020) directly from eligible companies.
Now the bad news: commenting on the facility, TD Securities rates strategist Gennadiy Goldberg said that the fact that the spread on the Federal Reserve’s resurrected commercial paper funding facility at 3-month OIS+200bp is larger than it was in 2008, when it was 3-month OIS+100bp, which "may limit the efficacy of the facility."
Why? Because according to Goldberg, "the Fed is probably hoping banks go to the discount window while non-financial corporates go to this facility."
The seemingly punitive rate may also "limit how much relief the facility provides to FRA-OIS. This is the exact opposite of the approach the have taken via the repo facility, where repo amounts on offer are effectively unlimited," and begs the question why does the Fed keep shooting itself in the foot when on one hand it appears to be offering unlimited liquidity at least until one reads the fine print.
Now the really bad news: by launching the Lehman playbook, the Fed is telegraphing that the US is now facing systemic risk crisis which also includes the banks and corporations, something which was missing until now. Which is why after a brief kneejerk reaction higher, markets may fade it all and crash to new lows, especially if the market demands to see what if any other ammunition the Fed has left, with expectations that sooner or later the Fed will do as Yellen hinted three months ago when she said that the Fed will eventually have to buy stocks.
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