From pandemic to financial crisis? - Barokong
Yes, the stock market is jumping around, but Treasury markets are also going a bit nuts. And the NY Fed is pulling out the Bazookas:
Today, March 12, 2020, the Desk will offer $500 billion in a three-month repo operation at 1:30 pm ET that will settle on March 13, 2020. Tomorrow, the Desk will further offer $500 billion in a three-month repo operation and $500 billion in a one-month repo operation for same day settlement. Three-month and one-month repo operations for $500 billion will be offered on a weekly basis for the remainder of the monthly schedule. The Desk will continue to offer at least $175 billion in daily overnight repo operations and at least $45 billion in two-week term repo operations twice per week over this period.In English, you can get cash quick by parking your treasury securities to the Fed. And the Fed is getting ready for huge amounts.
These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak.If I read this right, we're looking at a cut to 0.25% very soon.
A pandemic should be one grand stay-cation. (Writing here about the economy, and those of us who do not get sick. It is of course combined with a health care disaster, which I don't write about for the simple reason that I'm not a pandemic health policy expert.) The economy shuts down as it seems to do over Christmas - New Years, or Europe in August, and then starts right back up again. Except people and businesses make sure they have cash to pay bills over the vacation. If the US follows Italy to a national shutdown, businesses start to fail, banks get in trouble, here we go. I think these are signs of a flight to cash starting up.
As far as I know the "stress tests" never asked "what are you going to do in a pandemic."
Informed commentary from market participants is especially welcome. Thanks to correspondents for both of these links, which I do not regularly follow.