This move is unprecedented
The Fed is buying everything.
Today's announcement is unprecedented in both size and scope. It is a complete perversion of market functioning and a nuclear bomb more than a bozooka.
It basically renders banking meaningless and puts all the risk on the Fed. It's a complete gift to lenders. You can still loan people money at 20% on a credit card but the package up the debt and sell it to the Federal Reserve.
In the Treasury, agency and MBS market, pricing doesn't matter anymore. US 10-year yields are down 10 bps on the announcement to 0.70%. The Fed has simply said it will buy unlimited amounts of government-backed bonds in "amounts needed to support smooth market functioning and effective transmission of monetary policy." We have no idea if that means 1% yields or 0% further out the curve.
Not only that, but 'large employers' -- corporate America -- will buy newly-issued bonds and in the secondary market up to 4 years with no interest or principal for 6 months. So essentially, Exxon can launch a bond and sell it directly to the Fed. What's especially interesting about this is that it's only open to companies with investment grade credit ratings. However there is are hundreds of companies right on the cutoff to junk that should be downgraded any day. Without the Fed buying, that cliff becomes even steeper.
Finally, the Fed said it will soon establish a "Main Street Business Lending Program" to make similar loans to small-and-medium sized businesses.
