A funding backstop the U.S. Federal Reserve launched on Tuesday aims to help address liquidity problems that have lingered in the coronavirus-roiled commercial paper market, but some analysts say the high borrowing costs may limit participation.
FILE PHOTO: The U.S. Federal Reserve Building is pictured in Washington, March 18, 2008. REUTERS/Jason Reed/File Photo
“Just knowing it is available has helped to calm the market,” said Kevin Giddis, head of fixed income at Raymond James. “I don’t know that it’s going to get a whole lot of utilization,” she said. “Having said that, I think it’s good that it’s there and it adds sort of a floor if spreads started to get too wide for whatever reason.”
“Had the Fed wanted to lower the prices of the CPFF and the Money Market Mutual Fund Liquidity Facility , it would have done so by now,” wrote Zoltan Poszar, money market analyst at Credit Suisse. Companies rely on commercial paper as a source of short-term cash for payrolls, inventory and accounts payable as well as unanticipated funding needs.
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