Fed Pulling Out All The Stops

As part of its efforts to help support the American economy during the economic distortion created by COVID-19, the Federal Reserve has asked the world’s largest asset manager, Blackrock Inc, to oversee several of the QE programmes recently announced.

The New York Fed announced on Tuesday that BlackRock will be in charge of managing three of the Fed’s debt-buying programmes, including two of the new operations announced by the Fed on Monday to channel liquidity to corporates for the first time. BlackRock will also be in charge of agency purchases of mortgage-backed securities.

In a statement released yesterday, the Fed said that it chose BlackRock to manage the programs “after considering their expertise with purchasing large amounts of all relevant types of corporate debt issuance and corporate bonds in the secondary market, deep knowledge and substantial experience in the corporate debt markets, and robust operational and technological capabilities.”

The Fed has announced several major policy adjustments in the last week as it steps up its defence of the US economy. On Monday, the Fed notified markets that it will now be running unlimited QE, purchasing Treasury bonds and mortgage securities as needed, rather than to quota. The Fed also announced that it will commence purchases of agency commercial mortgage-backed securities. The Fed has outlined a quota of $50 billion in mortgage-backed securities as part of the new programs announced.

Explaining BlackRock’s role in managing the mortgage-backed securities, the Fed said the asset manager will operate “as a third-party vendor to operationalize these purchases and transact with the primary dealers”.

Echoes of 2008

Many of the Fed’s recent announcements (which have all been unscheduled) have echoed the operations carried during and after the Global Financial Crisis. The last time the Fed used BlackRock in such a capacity was during the fallout from the 2008 crisis when it was engaged to manage portfolios of mortgage assets from failed bank Bear Sterns and failed insurer American International Group.

The Fed has now drastically cut rates to just above zero along with starting huge QE programmes. Currently, it seems that the market is starting to find some faith in the Fed as over the last 24 hours we have seen net-buying in US asset markets. However, with the US death toll from COVID-19 continuing to rise there is still a great deal of uncertainty and further downside cannot be ruled out.

Technical View

S&P500 (Neutral, bullish above 2452)

From a technical viewpoint. The S&P is now at a critical level, price has rebounded off the 2193 level support and is retesting the 2452 level. The move higher has currently matched the last correction seen in the sell off and so unless price can sustain above this level) bringing the yearly S1 at 2700 back into view) a resumption of the downside move is likely.

Fed Asks BlackRock To Help With QE

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