Central banks have offered trillions of dollars of support to markets in recent ...
LONDON/BOSTON - Central banks have offered trillions of dollars of support to markets in recent days to keep them from freezing up, as investors worried about the economic damage from the coronavirus and made a chaotic dash for the exits.
“The best that economic and financial policymakers can do right now is limit the damage. They cannot turn the economy around because this is a health issue, not an economic or financial issue,” said Mohamed El-Erian, chief economic advisor to the German insurer Allianz SE , in an interview. Governments ramped up their support quickly in recent days as it became clear that the scale of the hit from the virus is likely to be huge. Last week was the worst since 2008 for the U.S. stock market. Less visible is the stress building up in other markets that keep the real economy humming, such as the markets where companies go to raise short term cash to pay staff and where cities go to raise money for roads and schools.
In commercial paper markets, where companies go to access short-term funding, the Fed launched on Tuesday a new facility that buys commercial paper from highly rated companies. It helped, said Blake Gwinn, a strategist at NatWest Markets Plc, but the borrowing costs were higher than expected and the facility was too limited in targeting the strongest borrowers.
“The next crucial step in aiding liquidity will be to ease bank regulatory constraints,” TD Securities strategists wrote in a note.One sign that the measures so far are insufficient: persistent volatility in markets. Volatility - large ups and downs in asset prices - is at extreme levels, as measured through indicators such as the market fear gauge in stocks and the Deutsche Bank Currency Volatility Index .DBCVIX in currencies.
One example is the market for Treasury bonds, one of the world’s most liquid assets. Prices continued swinging sharply last week. In normal times, Treasury yields move a few basis points, or hundredths of a percent. The 10-year Treasury US10YT=RR saw a 43-basis-point swing in yield on Friday, versus a swing of about 27 points on Wednesday and Thursday.
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