US FED TO PUMP LIQUIDITY INTO THE MARKET.....negative rates....gold to go upwards.

Fed promises to pump trillions of dollars into financial markets

The Federal Reserve said it would pump trillions of dollars into the financial system in a dramatic attempt to ease stresses in short-term funding and US Treasury markets that have accompanied the spread of the coronavirus.

The US central bank is also making changes to its programme of Treasury purchases “to address highly unusual disruptions in Treasury financing markets”.For the third time in four days, the Fed’s New York arm announced on Thursday that it would increase the size of its lending in the repo market, where investors borrow cash in exchange for high-quality collateral like Treasuries — this time by multiples of the amounts previously on offer.

The action provided a temporary jolt to US equity markets, which had been down as much as 8.8 per cent before the intervention amid mounting fear of the economic impact of efforts to contain the coronavirus.The S&P 500 index recovered some ground but reversed course again soon after, suggesting to Seema Shah, chief strategist at Principal Global Investors, that markets still do not think policymakers have yet done enough to address the damage caused by the coronavirus outbreak.“It’s a deeply worrying sign,” she said. “Policymakers are really struggling.”The Fed would now offer up at least $500bn in three-month loans, beginning immediately, with another $500bn of three-month loans on Friday. It said it would also provide a $500bn one-month loan on Friday that settles on the same day. It also said it would continue to offer $500bn of three-month loans and $500bn one-month loans on a weekly basis until April 13, on top of its ongoing programme of $175bn in overnight loans and $45bn in two-week loans twice per week.

“It is a massive flood of liquidity into the system,” said Guy LeBas, chief fixed-income strategist at investment manager Janney Montgomery Scott. “If the Fed is responsible for the smooth functioning of government funding markets, it was appropriate to take action now.”Banks and investors have said that trading conditions in Treasuries, the world’s biggest and deepest debt market, have deteriorated markedly this week, and concerns about the impact have become one driver of the wider market sell-off.

“The US Treasury market is the bedrock for all other financial markets,” analysts at Bank of America wrote in a note to clients earlier on Thursday. “It is the world’s risk-free rate and allows the US government to fund itself. If the US Treasury market experiences large-scale illiquidity it will be difficult for other markets to price effectively and could lead to large-scale position liquidations elsewhere.”The vast amounts of new lending on offer appeared designed to more than meet any demand. In the event, of the first tranche of three-month loans, just $78.4bn of the offered $500bn was taken up.

The second prong of the effort announced by the Fed on Thursday involved the composition of its purchases of US Treasuries. It has been buying $60bn a month since late last year to increase reserves in the banking system, but it will now buy a wider range of longer-term Treasuries so that it can plug any gaps in liquidity.

It said its purchases this month would “roughly match the maturity composition of Treasury securities outstanding”. The terms of operations would be adjusted as needed to foster smooth Treasury market functioning and efficient and effective policy implementation, it said.Peter Fisher, former manager of the New York Fed’s market operations, said the central bank’s role when something as foundational as the Treasury market comes under stress is to “just make markets”, he said. “Take no view.”