Fed goes unlimited: QE infinity and Main Street facilities

The Fed announced open-ended QE on March 23 2020, removing the $700B cap from its March 15 announcement and committing to buy Treasuries and mortgage-backed securities "in the amounts needed to support smooth market functioning." The statement also introduced the Primary and Secondary Market Corporate Credit Facilities, the Term Asset-Backed Securities Loan Facility, and a commitment to Main Street lending programs. For the first time in US history, the central bank committed to purchasing corporate bonds.

Risk assets continued selling off intraday as the statement landed mid-morning, with the S&P 500 closing down 2.93% at 2237. But the bottom was in. From March 23 forward, every subsequent session over the following month saw incremental gains as liquidity facilities came online. The cash-to-credit spread narrowed within days. By late April the S&P had recovered 30% from the low.

The session crystallized several lessons. Central bank backstops scale to the size of the crisis, and their announcement (not operation) moves markets. Credit markets led equities into and out of the bottom: IG spreads had peaked March 23, narrowed ahead of stocks. And dollar liquidity, not equity sentiment, was the binding constraint during the selloff. Swap lines, repo facilities, and QE addressed that constraint in that order.