Bond Market

Stimulus Package Finder

Doug Drabik discusses fixed income market conditions and offers insight for bond investors.

There have been many stimulus programs introduced and implemented into the economy. They are intended to help households, small, medium and large businesses and financial institutions, creating a backstop for cash flow and credit with the intention of maintaining viable home and business operations. This commentary attempts to simplify the key components of each in order to more easily identify their purposes.

Initial Actions

  • March 15, 2020: Fed Funds cut to 0.00% to 1.00% range.
  • March 15, 2020: Fed cut discount window rate by 1.50%. Cut reserve requirements to 0.00%.
  • March 23, 2020: Fed asset purchases unlimited (was at $700 billion max)

CARES Act - Individuals

  • Supports individuals. $300 billion.
    • Stimulus checks: individuals earning <$75,000 receive $1,200. Married couples each receive check.
    • $500 per child
  • $260 billion extra unemployment benefits
    • Adds $600 per week above what state pays (for 4 months).
    • Adds 13 weeks of unemployment insurance.
  • Tax filing deadline extended to July 15, 2020.
  • Student loans: employers can provide up to $5,250 in tax-free student loan repayment benefits. (workers don’t include this payment as income).
  • Requires private insurance plans to cover COVID-19 treatment and vaccine and tests free.

CARES Act - General

  • Stock buybacks prohibited if receiving a loan.
  • Public disclosure required.
  • White House staff and Congress cannot participate.
  • Fully refundable tax credit for all businesses closed or distressed to help keep workers on payroll. Credit covers 50% of payroll on first $10,000 of compensation/health benefits per employee.
  • $8.8 billion to schools for student meals.
  • Temporary student loan payment deferral to September 30, 2020.
  • $15.5 billion to Supplemental Nutrition Assistance Program (SNAP).
  • $450 million to food banks.

CARES Act - Public Health

  • $100 billion for hospitals dealing with coronavirus.
  • $1.32 billion to community health centers providing care.
  • $11 billion for diagnostics, treatments, and vaccines. ($80 million for Food and Drug Administration to expedite new drugs).
  • $4.3 billion to Centers for Disease Control and Prevention (CDC).
  • $20 billion to veterans’ health care.
  • Authorizes telehealth program (virtual doctor appointments).
  • $16 billion to Strategic National Stockpile.

CARES Act - State and Local Government

  • $339.8 billion to state and local governments.
  • $274 billion to COVID-19 response.
  • $5 billion Community Development Block Grants.
  • $13 billion to K12 schools
  • $14 billion to higher education
  • $5.3 billion in programs for children and families.

CARES Act - Business

  • $350 billion to Small Business Administration ($10 million per business). Use for rent, mortgage, payroll (provided employee stays on through end of June).
  • $17 billion to cover 6 months payments on existing SBA loans.
  • $500 billion in loans to big corporations.
    • Airlines ~$58 billion ($25 billion to passenger carriers, $4 billion to cargo carriers, $3 billion to airline contractors).

Funding Facility (CPFF)

  • Established March 17, 2020; Opened April 4, 2020
  • Short term financing to corporations to meet liquidity needs for auto loans, mortgages, operations, payrolls, etc.
  • Created SPV (special purpose vehicle) buys commercial paper.
  • Set price providing backstop to credit loss up to $10 billion credit protection.

Primary Dealer Credit Facility (PDCF)

  • Established March 17, 2020
  • Overnight facility for primary dealers. Allows them to pledge different securities to secure overnight financing at rates equal to discount window. Designed to fund liquidity by pledge (vs. selling to build cash).
  • Allowable eligible collateral: corporate/municipal bonds (investment-grade securities), commercial paper, some equities.

Money Market Mutual Fund Liquidity Facility (MMLF)

  • Established March 18, 2020
  • Federal Reserve Bank of Boston – loans to eligible financial institutions (pledge high-quality assets purchased by the financial institution from money market mutual funds as opposed to selling collateral into market with depressed prices).

Primary Market Corporate Credit Facility (PMCCF)

  • Established March 23, 2020
  • Supports large investment-grade companies with credit for new bond and loan issuance.
  • Allow business to maintain operations and capacity. Bridge financing up to 4 years.
  • Corporations rated BBB-/Baa3 or better as of March 2, 2020. Rated BB-/Ba3 at time of purchase.
  • Ceases purchasing eligible assets no later than September 30, 2020.

Secondary Market Corporate Credit Facility (SMCCF)

  • Established March 23, 2020
  • Supports credit to large employers providing liquidity for outstanding corporate bonds.
  • SMCCF purchases investment-grade corporate: individual bonds and those in exchange-traded-funds; =<5yrs maturity; ETF exposure primarily in U.S. bonds (including high yield). BBB-/Baa3 as of March 22, 2020 and BB-/Ba3 on date of purchase.
  • Ceases purchasing eligible bonds no later than September 30, 2020.

Term Asset-Backed Securities Loan Facility (TALF)

  • Established March 23, 2020
  • Supports flow of credit to consumers and businesses.
  • Enable issuance of asset-backed securities (ABS) backed by student loans, credit cards, Small Business Administration (SBA), and other assets.   

Payroll Protection Program Liquidity Facility (PPPLF)

  • Established April 3, 2020. Additional funds April 27, 2020.
  • Supports Small Business Administration’s Paycheck Protection Program (PPP).
  • Huge initial demand exhausted $349 billion. Additional funds of $310 billion.

Municipal Liquidity Facility (MLF)

  • Up to $500 billion direct short-term note purchases of U.S. state/county/city municipalities (county >2 million population, city >1 million population).

Main Street Business Lending Program (MSBLP)

  • Supports small- to mid-size businesses (up to 10,000 employees or revenue >$2.5 billion).
  • 4-year loans, principal & interest deferred for 1 year (up to $600 billion).

(Sources, Federal Reserve, NPR, Bloomberg, Raymond James)

More detailed information can be found on the Federal Reserve Website: https://www.federalreserve.gov/newsevents/funding-credit-liquidity-and-loan-facilities.htm


To learn more about the risks and rewards of investing in fixed income, please access the Securities Industry and Financial Markets Association’s “Learn More” section of investinginbonds.com, FINRA’s “Smart Bond Investing” section of finra.org, and the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access System (EMMA) “Education Center” section of emma.msrb.org.

The author of this material is a Trader in the Fixed Income Department of Raymond James & Associates (RJA), and is not an Analyst. Any opinions expressed may differ from opinions expressed by other departments of RJA, including our Equity Research Department, and are subject to change without notice. The data and information contained herein was obtained from sources considered to be reliable, but RJA does not guarantee its accuracy and/or completeness. Neither the information nor any opinions expressed constitute a solicitation for the purchase or sale of any security referred to herein. This material may include analysis of sectors, securities and/or derivatives that RJA may have positions, long or short, held proprietarily. RJA or its affiliates may execute transactions which may not be consistent with the report’s conclusions. RJA may also have performed investment banking services for the issuers of such securities. Investors should discuss the risks inherent in bonds with their Raymond James Financial Advisor. Risks include, but are not limited to, changes in interest rates, liquidity, credit quality, volatility, and duration. Past performance is no assurance of future results.

Stocks are appropriate for investors who have a more aggressive investment objective, since they fluctuate in value and involve risks including the possible loss of capital. Dividends will fluctuate and are not guaranteed. Prior to making an investment decision, please consult with your financial advisor about your individual situation.