Liquid Alternatives: Muni Bond Caucus Wants Fed to Help; NY Fed to Buy ETFs in May

May 5, 2020 | Liquid Alternatives, News

States reeling from virus, says Caucus; NY Fed will open the spigots in May.

Members of the House Municipal Finance Caucus have written to the Fed to buy municipal bonds of terms up to 30 years.

The move comes as the coronavirus has badly hit states’ finances.

Meanwhile, the municipal bond market continues to struggle after it shut down to new issues in March. (ETF Trends)

Munis: Bipartisan letter

In a letter dated May 1, 43 House lawmakers wrote to Fed Chairman Jerome Powell and Treasury Secretary Steve Mnuchin. They requested support above and beyond what is the present remit for new note issuances in the Municipal Liquidity Facility.

“This is a segment of the market that should not be ignored,” wrote the lawmakers. These efforts should also include the needs of rural, suburban, and urban communities, they said.

On April 9, the Fed announced the establishment of a Municipal Liquidity Facility offering up to $500 billion to states and municipalities.

The Facility will aid states, counties, and municipalities to regulate their cash flow. This will be through the purchase of tax anticipation and revenue anticipation securities with a duration of up to three years.

Meanwhile, Michael Decker of the Bond Dealers of America said the muni market was not behaving normally. However, it was executing trades.

Decker said the Fed should be ready to intervene “if market conditions deteriorate.”

New York Fed to buy corporate bond ETFs

Separately, in a previously announced move intended to support credit markets, the Fed is gearing up to commence, as early as this month, two emergency corporate lending programs. These would buy up to $750 billion in debt and ETFs.

The Federal Reserve has authorized the New York Fed for these programs. It said on its website that it may start buying shares of eligible ETFs in early May. It will do this  through its Secondary Market Corporate Credit Facility (SMCCF). The SMCCF’s brief is to support credit to large employers by providing liquidity for outstanding corporate bonds.

“As detailed in the FAQs released today, the SMCCF is expected to begin purchasing eligible ETFs in early May,” the New York Fed said.

Lending through the primary- (PMCCF) and secondary- (SMCCF) market corporate credit facilities via purchases of corporate bonds will begin soon thereafter, it said.

Related Story:  Liquid Alternatives: The Fed’s “All-it-Takes” Stimulus Includes Purchase of Bond ETFs                                                  

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