The New York Federal Reserve will begin buying Treasurys across the yield spectrum as part of its efforts to help the financial system through the coronavirus scare.
In an announcement Friday, the central bank said it was accelerating to Friday purchases it announced a day before. The move comes in response to market demand that the Fed act immediately to quell what has been an extraordinarily volatile time in the bond market, with yields sinking to historic lows amid rising liquidity concerns.
Yields at the long end of the curve jumped after the Fed’s announcement though gains in the stock market decreased.
The schedule for Friday’s operations looks like this:
About $4 billion each in 20- to 30-year purchases from 10:30-10: 45 a.m. ET.
About $5 billion in the 7- to 20-year space from 11:15-11:30 a.m. ET.
About $8 billion in the 4.5- to 7-year sector from 12:45-1 p.m. ET.
About $8 billion in the zero- to 2.25-year sector from 1:30 to 1:45 p.m. ET.
Markets have been looking for the Fed to start buying coupon-bearing securities particularly at the long end of the curve due to a backup on dealer balance sheets that poses potential duration risk as the economy slows.
“These purchases are intended to address highly unusual disruptions in the market for Treasury securities associated with the coronavirus outbreak,” the New York Fed said in a statement.
The moves are part of $60 billion in purchases already announced as part of the Fed’s moves to expand its balance sheet and reserves in the banking system. In addition, the central bank is reinvesting $20 billion of principal payments it receives from holdings in agency debt and mortgage-backed securities.
In addition to the new round of bond purchases, the Fed also on Thursday announced a series of longer-term repo operations that could amount to $1.5 trillion. Repo involves banks swapping high-quality assets for reserves they use to fund daily operations.