The Latest: Fed speeds Treasury buys
The Federal Reserve is accelerating its purchases of Treasury securities to address ongoing disruptions in the Treasury bond market, the largest and one of the most important financial markets in the world.
The Fed said that it will purchase about $33 billion of Treasurys on Friday, out of the $80 billion it plans to buy over the next month. The Fed will purchase a range of maturities, from short-term bills to 7-year notes to 30-year bonds.
“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.
Typically, when stock prices plummet, as they have this week, Treasury yields fall as investors pile into Treasury bonds, which are considered the safest assets in the world. That raises their price but lowers their yields. But this week Treasury yields have risen, an unusual move that suggests many investors that want to sell large volumes of bonds are having difficulty doing so.
Guy LeBas, chief fixed income strategist at Janney, said that many large banks are saddled with huge holdings of Treasury securities and likely want to unload them to free up cash for their corporate clients. Large corporations are increasingly drawing down credit lines at banks amid the economic turmoil from the coronavirus.
Warren Buffett’s annual shareholder meeting for Berkshire Hathaway draws professional-sporting-event sized crowds every year to Omaha, Nebraska.
But like the NBA, NHL and Major League Baseball, there will be no one in the stands for the big event this year because of the risks from the coronavirus pandemic.
Buffett said Friday that the May 2 event will stream live on Yahoo and there may be a select number of journalists on hand to ask questions.
Buffett appeared crestfallen about shutting down the public portion of the two-decade-old event, which is usually a staid, but still carnival-like event. Last year in the traditional auction for the opportunity to have lunch with Buffett, the winning bid was more than $4.5 million.
He wrote that the event has become a high point each year for him and his business partner, Charlie Munger.
“It is now clear, however, that large gatherings can pose a health threat to the participants and the greater community,” Buffett said. “We won’t ask this of our employees and we won’t expose Omaha to the possibility of becoming a ‘hot spot’’ in the current pandemic.”
The event will be attended by Buffett, Munger, and several employees who will deliver proxy votes from shareholders.
German ship operator Aida Cruises says it is suspending all of its cruises due to “massive restrictions” being implemented in response to the COVID-19 pandemic.
The Rostock-based company told The Associated Press on Friday that it would be suspending all cruises until April 5, and that all cruises currently underway will call at ports and allow guests to debark and return home.
Aida said it had no option but to end the cruises, with countries around the world implementing measures at short notice affecting their ports of call.
“Due to the increasing number of cases of Covid-19, there are massive restrictions in the countries we call at worldwide,” the company said.
The company did not say how many passengers would be affected, but Germany’s dpa news agency said 14 cruise ships are affected.
The respective measures taken in the regions are issued at very short notice.
Stocks are opening sharply higher on Wall Street a day after the worst drop since 1987. The Dow Jones Industrial Average jumped 550 points, or 2.6% early Friday.
That’s about a quarter of what the index lost a day earlier. European markets surged about 7% a day after one of their worst drops on record.
The wild swings continued as governments stepped up precautions against the spread of the new coronavirus and considered ways to cushion the blow to their economies.
Asian markets ended a volatile day mostly lower. Central banks in China, Sweden and Norway also stepped in to support bond markets.
The European Commission says it will set up a 37 billion-euro ($41 billion) investment fund and allow “maximum flexibility” on state aid and fiscal rules to help member states weather the economic hit by the coronavirus outbreak.
European Commission president Ursula von der Leyen said the EU budget will guarantee 8 billion euros in liquidity for small and medium-sized companies affected by the crisis.
“Member states should be encouraged to take all necessary measures to support their economy,” von der Leyen said Friday during a presser conference.
“The coronavirus pandemic is testing us all, and and most of all, people,” she said. “The virus is not only dangerous for our health, it is also hitting our economies. It is a major shock for the global and European economy. We have to take decisive and bold action now, on all levels.”
Trading in U.S. futures was halted Friday with the Dow, S&P 500 and Nasdaq all surging more than 5%. A “limit up” trigger intended to keep market volatility within a set range went into effect hours before the opening bell.
Markets in Europe were cheered by big announcements of financial support, particularly by Germany and France. The EU’s two biggest economies pledged hundreds of billions of dollars – and more if necessary – in guarantees to protect individuals and small businesses from the economic damage of the pandemic.
France’s government is promising to compensate virus-related salary losses for “99%” of workers, as travel bans, school closures and other measures take a heavy toll on the economy.
It’s part of tens of billions of euros the government says it will stump up to support the economy, as French financial markets plunge and companies curb activity to try to stem the spread of the virus.
“Nobody with a job will lose a cent,” Finance Minister Bruno Le Maire said on BFM television Friday. “OK, for the highest salaries we might think of putting a limit on compensation, but we will provide for 99 % of employees” who see wage losses linked to virus containment measures.
He also loan guarantees to small and medium businesses struggling because of the virus.
“We will do whatever is necessary to support our economy and even more. How much will it cost ? Tens of billions of euros.”
France has more than 2,800 confirmed cases, including 61 deaths.
The Germany government is pledging at least 460 billion euros ($513 billion) in guarantees to cope with the economic impact of the coronavirus outbreak.
Germany’s economy minister, Peter Altmaier, said there was no limit to the amount the government was willing to use to support everyone from individuals, such as taxi drivers, to large companies, to prevent the corona pandemic from causing permanent harm to the economy.
Finance Minister Olaf Scholz said the 2008 financial crisis following the collapse of Lehman Brothers offered lessons for the current situation.
“We will use all means at our disposal,” he said at a joint press conference with Altmaier on Friday.
Scholz told reporters in Berlin that thanks to careful spending in recent years the government was in a position to spend heavily to put in place necessary measures such as tax relief for companies and relaxing labor regulations.
“We won’t do things by half-measures,” he said.
China’s government on Friday freed up additional money for lending by reducing the amount of their deposits commercial banks are required to leave on reserve at the central bank.
The required reserve ratio will be cut by between 0.5 and 1 percentage points for banks that meet regulatory targets for lending to small and private businesses, effective March 16, the central bank announced. It said that should release an additional 550 billion yuan ($80 billion) for lending.
The People’s Bank of China said that was intended to lower financing costs and support economic recovery.
China often uses such reductions to increase the amount of money available for lending without changing interest rates. A similar cut in the reserve ratio in January released 800 billion yuan ($115 billion).
Sweden’s central bank says it will lend up to 500 billion kronor ($52 billion) to companies via the banks to keep them from “being knocked out as a result of the spread of the coronavirus.”
In a statement, the Riksbank said the ” turbulence on the financial markets means that companies that are essentially robust may experience funding difficulties,” central bank governor Stefan Ingves said.
“It is then important that the banks continue to provide these companies with loans so that the credit supply is not threatened. The measures taken in this situation should be regarded as a form of insurance that enables Swedish companies -— particularly small and medium-sized enterprises – to feel secure that the credit supply will not fail.”
The central bank of non-European Union member Norway said Friday it had decided to reduce the policy rate by 0.50 percentage points to 1%.
European markets have opened mostly higher after a turbulent trading session in Asia.
Shares rose in Paris and London but fell 6.1% in Japan following Wall Street’s biggest drop since the 1987 Black Monday crash.
Friday the 13th brought wild swings for some markets as governments stepped up precautions against the spread of the new coronavirus and considered ways to cushion the blow to their economies.
India’s Sensex gained 4% after plunging 10% when it opened, triggering a brief halt to trading.
U.S. futures were up more than 2% after the Federal Reserve and European Central Bank pledged more support for markets churned by a cascade of shutdowns across the globe.