Fed makes 'aggressive' move to back corporate debt markets, Main St.

Yahoo Finance’s Brian Cheung joins Alexis Christoforous and Brian Sozzi to discuss the latest Federal Reserve decision and what impact it could have on the markets.

Video Transcript

ALEXIS CHRISTOFOROUS: Morning, everyone. And welcome to Yahoo Finance. I'm Alexis Christoforous. If you've been watching us over the past few days, you know that we've been broadcasting from our homes here at Yahoo Finance as we do our part to try to have social distancing and also try to flatten that curve during this pandemic. We want to thank all of you for joining us and for going through this with us. We have a lot of information to bring you this morning. We're going to start with some positive news.

Stock futures are rallying across the board. NASDAQ futures up better than 2%. S&P and Dow futures up about 2% right now. And that's because the Federal Reserve, just a short time ago, unleashed a slew of programs to help the stock market, as well as small businesses. And we want to get right to it with Brian Cheung who was just on a call with the Federal Reserve for all the details. Brian.

BRIAN CHEUNG: Hi, Alexis. So the big news from Federal Reserve coming this morning before the market bell. We did hear that there was going to be a lot of changes with regards to their asset purchase program and quantitative easing. So they did say that they will be suspending guidance on their pace of asset purchases. Keep in mind that they had been previously committing to $500 billion of US Treasury purchases and $200 billion of agency mortgage backed securities over the coming months.

They said they will just buy whatever the amounts are that are needed to make sure that the economy can withstand the shock of the coronavirus. A few other things that-- that's worth mentioning, these are very in the weeds programs, but I'm going to try to walk you through it. They committed to buying corporate debt. This is investment grade corporate debt through new liquidity facilities that are backed by the US Treasury. These are new facilities that we actually have not seen before. So it's not the same playbook as 2008.

This is going to be primary market and secondary market open purchases. And in some cases, as is the case with the secondary market, they'll actually be buying corporate debt ETFs, as well. It has to be eligible for the program, but they will be taking on those ETFs. Again, something new that we have not seen from the Federal Reserve before. And they also said that they would be reopening what they call the term asset backed securities loan facility. This was something that they used in 2008.

This would take on repackaged things like auto loans and student loans. But another big headline from the Fed is that they said in addition to what they announced today, they will soon have the establishment of what they call a Main Street business lending program. They said it will resemble something like small-- the-- the Small Business Administration loans that are being offered right now. Regardless, the Federal Reserve says all these things are necessary to support the economy. A quick quote I want to read to you.

They said, "While great uncertainty remains, it has become clear that our economy will face severe disruptions. Aggressive efforts must be taken across the public and private sectors." So the Federal Reserve saying in their third emergency meeting that they need to act to support markets as the turmoil continues. Alexis.

ALEXIS CHRISTOFOROUS: All right. Thank you very much, Brian. Brian, did you have a question for-- Brian Sozzi, did you have a question for Brian Cheung?

BRIAN SOZZI: Yeah. Brian, we've seen a big turn in the future as we were limit down, now we're surging in the premarket here. Does this move liquidity risk in the markets? Because I think a lot [AUDIO OUT] investors right now are thinking that's the case.

BRIAN CHEUNG: Well, that's the effort that the Fed's been undertaking for the last two weeks or so. They've announced a number of other different types of liquidity programs, like the commercial paper funding facility, like the primary credit dealer facility. These are all things that are supposed to support the underpinnings of different types of markets. Whether or not that's US treasuries, or corporate debt, in this case. But it seems like the market reaction today is-- seems to be a positive idea, not necessarily because of the technicalities of what's going on in these programs.

These are very in the weeds kind of, you know, things that most people who are watching this program might not really understand or be familiar with. But what we do know is that these are new tools. The Federal Reserve has never targeted corporate debt in a way like this before. The Fed has never outrightly purchased corporate bond ETFs before. I mean, the next question is, what more can the Fed do?

And I think that when the Fed opens up its playbook and says, look, we don't have the same tools that we had in 2008. We can get really creative here and do whatever it takes-- not necessarily using those words-- but do whatever we need to do to support the economy. I think the market reads that as a positive sign.

ALEXIS CHRISTOFOROUS: All right. Thanks very much, Brian.