On Friday, the Federal Reserve said that it is going to extend their asset purchase program into the municipal bonds of short term. As of now, the central bank has been limited in its effort of the securities which are mortgage backed and the Treasuries in an attempt for keeping the liquidity flow going through the systems and credit market being stabilized.
There has been a continuous disruption all over the markets for the local and state government debt which had promoted Fed into take more action in their efforts for combating the effects of coronavirus. The markets have almost collapsed in the week and not many are now in the mood to step in and buy the debt of the government keeping in mind the current climate.
In their statement, Fed had said that the move is for enhancing the functioning and liquidity of the crucial money markets of state and municipality.
This program is going to be working through the Mutual Fund liquidity which had been announced earlier in the week and is offering an expansion of what was the era of financial crisis program that had authorized the purchase of the other assets. Everything getting into negative is something that had not happened at the time of the crisis.
Boston Fed is going to be lending to the eligible banks and the other institutions which are going to be able to use the single state and the other munis which are tax exempt in the form of collateral.
The S&P index had tumbled by 7.1 % in the last week and had been off by 4.2% in the day prior to that before the Fed had made its announcement.