The Federal Reserve took the highly unusual step of injecting more money into the bond market Thursday to ensure the financial system remains stable. The New York Fed will pump $1.5 trillion into the short-term lending markets that banks use to lend to each other on Thursday and Friday.
The Fed also announced it will buy $60 billion worth of Treasury bonds for the next month (March 13 through April 13) to help keep that market functioning appropriately. Earlier this week, investors reported problems trading in U.S. government bonds. These irregularities echoed the types of freezes seen during the 2008 financial crisis and the Fed appeared to want to act quickly to stop them.
The announcement that more than $1.5 trillion will be pumped into the banking system over the next two days comes as the Treasury market has shown signs of strain. Interest rates on U.S. government debt recently plunged to record lows, as investors poured money into safe assets, but now trading in that market is not flowing smoothly.
“These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” the New York Fed said in its announcement.