Fed: Will establish commercial paper funding facility to support flow of credit

The Federal Reserve has announced that it will establish the Commercial Paper Funding Facility (CPFF) to support the flow of credit to households and businesses on Tuesday. 

Key takeaways from the statement

“Will provide liquidity backstop to commercial paper market through special purpose vehicle purchasing unsecured and asset-backed commercial paper rated A1/PI as of March 17 directly from eligible companies.”

“Program established with the approval of the US Treasury secretary under Fed’s section 13(3) powers.”

“Commercial paper market under ‘considerable strain’ in recent days due to coronavirus outbreak.”

“Facility should eliminate risks in the market and improve ability of companies to maintain employment and investment through the outbreak.”

“Treasury to provide $10 billion of credit protection to the Fed in connection with the facility from the treasury’s exchange stabilization fund.”

“Transactions to be executed via primary dealers through the New York Fed.”

“Pricing will be based on the then-current 3-month OIS swap rate plus 200 basis points.”

“CPFF will terminate on March 17, 2021, unless extended.”

Market reaction

Wall Street’s main indexes gained traction on this announcement. As of writing, the Dow Jones Industrial Average was up 0.25% while the S&P 500 and the Nasdaq Composite were adding 2.3% and 2.7%, respectively.