Capital Markets, COVID-19, and Federal Government Emergency Facilities
link to page 2 link to page 3 
INSIGHTi
Capital Markets, COVID-19, and Federal
Government Emergency Facilities
June 22, 2020
The spread of COVID-19 induced heavy capital markets sel offs and rebounds in 2020. The crisis-
induced stress conditions have been broadly felt in al corners of capital markets—stocks, bonds,
investment funds, and other segments have al experienced heightened volatility. In response, the Federal
Reserve (Fed), sometimes with support from the Treasury Department, has established several emergency
facilities to provide support for key capital markets segments (Table 1). As of the publication of this
Insight, some markets affected by the announced emergency support appear to have rebounded to a
certain extent. Figure 1 il ustrates market conditions at the time of selected Fed announcements. The
changes in market activities do not suggest direct causal relationships with Fed announcements. Changes
in the course of the pandemic, other economic factors, and other government responses, such as the
Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136), likely also had significant effects.
Capital markets conditions are discussed in more detail in CRS Report R46424, Capital Markets Volatility
and COVID-19: Background and Policy Responses, by Eva Su.
Congressional Research Service
https://crsreports.congress.gov
IN11429
CRS INSIGHT
Prepared for Members and
Committees of Congress
Congressional Research Service
2
Table 1. Selected Capital Markets Segments Supported by Federal Reserve Funding, Credit,
Liquidity, and Loan Facilities
Selected Capital
Markets
Market Reactions Following the
Segments
Examples of Related Federal Reserve Facilities
Announcements
Corporate Bonds
The Fed announced in March the purchase of higher
At the first announcement of PMCCF and
credit quality investment-grade bonds for the first time
SMCCF’s creation, the bond market
through the Primary Market Corporate Credit Facility
rebounded, but high-yield bonds, which did
(PMCCF) and Secondary Market Corporate Credit
not receive the announced support,
Facility (SMCCF).
stabilized less.
The programs were extended to fal en angels in April
Fol owing the announcement of the
by including companies that lost investment-grade
expansion, prices for high-yield bonds rose
credit ratings after March 22, 2020.
substantial y, possibly signaling the
The Fed updated SMCCF on June 15, 2020, to spel
restoration of the market to some extent.
out the plan to purchase bonds using an internal y
Both investment-grade and high-yield bond
developed broad, diversified market index.
markets reportedly reacted positively after
the Fed disclosed more details on its
index-based buying strategy.
Asset-Backed
The Fed established the Term Asset-Backed Securities
While higher-rated CLOs rebounded to a
Securities (ABS)—
Loan Facility (TALF) on March 23, 2020, to support
large extent, the lower-tranche CLOs,
Col ateralized Loan ABS flow of credit to consumers and businesses. It
which are designed to absorb losses for
Obligations
expanded TALF to provide funding for CLO investors
the col ateral pools, did not recover at the
(CLOs)
(and indirectly leveraged loans) in April. Certain senior
same level.
tranche AAA-rated static CLOs could qualify for
TALF. Static CLOs are CLOs that do not include a
period of reinvestment of col ateral proceeds. The
eligible CLOs must have been newly issued, on or after
March 23, 2020.
The Fed expanded TALF again on May 12, 2020, to
include CLOs backed by eligible leveraged loans from
earlier periods, including loans originated on or after
January 1, 2019.
Municipal Bonds
The Fed included certain municipal bonds with short
Fol owing the Fed announcements, certain
maturities in some of its early liquidity facilities—the
municipal bonds’ pricing pressure appears
Money Market Mutual Fund Liquidity Facility (MMLF)
to have been reduced. Some broad
and the Commercial Paper Funding Facility (CPFF).
measures of the market—for example, the
The Fed expanded its support of state and local
10-year municipal bond yields—declined
governments on April 9 by announcing a program
substantial y from the March sel off levels.
devoted specifical y to municipal debt, purchasing
certain longer-term bonds issued by states, cities, and
counties—the Municipal Liquidity Facility (MLF).
Money Market
The Fed created the MMLF based on a facility it had
After the announcement on March 18,
Mutual Funds
deployed during the 2007-2009 financial crisis. MMF
2020, certain MMFs (prime and municipal)
(MMF)
assets that could serve as eligible col aterals include U.S.
that were previously facing redemption
Treasuries, government-sponsored enterprise debt,
pressure saw waves of inflows. The
high quality asset-backed and unsecured commercial
conditions for MMFs and the related
paper, certain certificates of deposit, and certain
underlying short-term credit markets have
municipal debt.
eased since the announcement.
Exchange-Traded
For bond ETFs, on March 23, 2020, the Fed established
Before any actual purchases took place,
Funds (ETF)
the SMCCF that can buy certain ETFs providing broad
the ETF market showed signs of
exposure to investment-grade bonds. It expanded the
stabilization. Bond ETFs experienced
program on April 9, 2020, to include certain high-yield
strong inflows immediately fol owing the
bond ETFs as wel .
announcement, and some ETFs reportedly
ceased trading at discounts to their net
asset value.
link to page 3
Congressional Research Service
3
Source: CRS based on Federal Reserve disclosures.
Notes: The table provides general examples. It is not inclusive of al related emergency lending actions and market events.
The market reactions capture changes in market activities; they do not suggest direct causal relationships. Market
conditions often changed before any actual purchases took place (e.g., TALF, SMCCF, PMCCF, and MLF). See Figure 1 for
changes in market conditions fol owing the related emergency lending announcements. For more details on individual
programs, see Federal Reserve Board, Funding, Credit, Liquidity, and Loan Facilities, at https://www.federalreserve.gov/funding-
credit-liquidity-and-loan-facilities.htm; and CRS Insight IN11327, Federal Reserve: Emergency Lending in Response to COVID-19,
by Marc Labonte.
Figure 1. Changing Market Conditions and Selected Federal Reserve Announcement Dates
Source: CRS based on S&P Capital IQ data.
Capital Markets and COVID-19 Product Series
CRS Report R46424, Capital Markets Volatility and COVID-19: Background and Policy Responses, by
Eva Su.
CRS Insight IN11421, Leveraged Loans and Collateralized Loan Obligations (CLOs): Recent
Developments and Policy Actions, by Eva Su.
CRS Insight IN11309, COVID-19 and Stock Market Stress, by Eva Su.
CRS Insight IN11275, COVID-19 and Corporate Debt Market Stress, by Eva Su.
CRS Insight IN11339, Securities and Exchange Commission (SEC) Actions to Mitigate the Impact of
COVID-19, by Gary Shorter.
CRS In Focus IF11320, Money Market Mutual Funds: A Financial Stability Case Study, by Eva Su.
Congressional Research Service
4
Federal Reserve Emergency Facilities and COVID-19
Product Series
CRS Report R46411, The Federal Reserve’s Response to COVID-19: Policy Issues, by Marc Labonte.
CRS Report R44185, Federal Reserve: Emergency Lending, by Marc Labonte.
CRS Insight IN11327, Federal Reserve: Emergency Lending in Response to COVID-19, by Marc
Labonte.
Author Information
Eva Su
Analyst in Financial Economics
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.
IN11429 · VERSION 1 · NEW
INSIGHTi
Capital Markets, COVID-19, and Federal
Government Emergency Facilities
June 22, 2020
The spread of COVID-19 induced heavy capital markets sel offs and rebounds in 2020. The crisis-
induced stress conditions have been broadly felt in al corners of capital markets—stocks, bonds,
investment funds, and other segments have al experienced heightened volatility. In response, the Federal
Reserve (Fed), sometimes with support from the Treasury Department, has established several emergency
facilities to provide support for key capital markets segments (Table 1). As of the publication of this
Insight, some markets affected by the announced emergency support appear to have rebounded to a
certain extent. Figure 1 il ustrates market conditions at the time of selected Fed announcements. The
changes in market activities do not suggest direct causal relationships with Fed announcements. Changes
in the course of the pandemic, other economic factors, and other government responses, such as the
Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136), likely also had significant effects.
Capital markets conditions are discussed in more detail in CRS Report R46424, Capital Markets Volatility
and COVID-19: Background and Policy Responses, by Eva Su.
Congressional Research Service
https://crsreports.congress.gov
IN11429
CRS INSIGHT
Prepared for Members and
Committees of Congress
Congressional Research Service
2
Table 1. Selected Capital Markets Segments Supported by Federal Reserve Funding, Credit,
Liquidity, and Loan Facilities
Selected Capital
Markets
Market Reactions Following the
Segments
Examples of Related Federal Reserve Facilities
Announcements
Corporate Bonds
The Fed announced in March the purchase of higher
At the first announcement of PMCCF and
credit quality investment-grade bonds for the first time
SMCCF’s creation, the bond market
through the Primary Market Corporate Credit Facility
rebounded, but high-yield bonds, which did
(PMCCF) and Secondary Market Corporate Credit
not receive the announced support,
Facility (SMCCF).
stabilized less.
The programs were extended to fal en angels in April
Fol owing the announcement of the
by including companies that lost investment-grade
expansion, prices for high-yield bonds rose
credit ratings after March 22, 2020.
substantial y, possibly signaling the
The Fed updated SMCCF on June 15, 2020, to spel
restoration of the market to some extent.
out the plan to purchase bonds using an internal y
Both investment-grade and high-yield bond
developed broad, diversified market index.
markets reportedly reacted positively after
the Fed disclosed more details on its
index-based buying strategy.
Asset-Backed
The Fed established the Term Asset-Backed Securities
While higher-rated CLOs rebounded to a
Securities (ABS)—
Loan Facility (TALF) on March 23, 2020, to support
large extent, the lower-tranche CLOs,
Col ateralized Loan ABS flow of credit to consumers and businesses. It
which are designed to absorb losses for
Obligations
expanded TALF to provide funding for CLO investors
the col ateral pools, did not recover at the
(CLOs)
(and indirectly leveraged loans) in April. Certain senior
same level.
tranche AAA-rated static CLOs could qualify for
TALF. Static CLOs are CLOs that do not include a
period of reinvestment of col ateral proceeds. The
eligible CLOs must have been newly issued, on or after
March 23, 2020.
The Fed expanded TALF again on May 12, 2020, to
include CLOs backed by eligible leveraged loans from
earlier periods, including loans originated on or after
January 1, 2019.
Municipal Bonds
The Fed included certain municipal bonds with short
Fol owing the Fed announcements, certain
maturities in some of its early liquidity facilities—the
municipal bonds’ pricing pressure appears
Money Market Mutual Fund Liquidity Facility (MMLF)
to have been reduced. Some broad
and the Commercial Paper Funding Facility (CPFF).
measures of the market—for example, the
The Fed expanded its support of state and local
10-year municipal bond yields—declined
governments on April 9 by announcing a program
substantial y from the March sel off levels.
devoted specifical y to municipal debt, purchasing
certain longer-term bonds issued by states, cities, and
counties—the Municipal Liquidity Facility (MLF).
Money Market
The Fed created the MMLF based on a facility it had
After the announcement on March 18,
Mutual Funds
deployed during the 2007-2009 financial crisis. MMF
2020, certain MMFs (prime and municipal)
(MMF)
assets that could serve as eligible col aterals include U.S.
that were previously facing redemption
Treasuries, government-sponsored enterprise debt,
pressure saw waves of inflows. The
high quality asset-backed and unsecured commercial
conditions for MMFs and the related
paper, certain certificates of deposit, and certain
underlying short-term credit markets have
municipal debt.
eased since the announcement.
Exchange-Traded
For bond ETFs, on March 23, 2020, the Fed established
Before any actual purchases took place,
Funds (ETF)
the SMCCF that can buy certain ETFs providing broad
the ETF market showed signs of
exposure to investment-grade bonds. It expanded the
stabilization. Bond ETFs experienced
program on April 9, 2020, to include certain high-yield
strong inflows immediately fol owing the
bond ETFs as wel .
announcement, and some ETFs reportedly
ceased trading at discounts to their net
asset value.
link to page 3
Congressional Research Service
3
Source: CRS based on Federal Reserve disclosures.
Notes: The table provides general examples. It is not inclusive of al related emergency lending actions and market events.
The market reactions capture changes in market activities; they do not suggest direct causal relationships. Market
conditions often changed before any actual purchases took place (e.g., TALF, SMCCF, PMCCF, and MLF). See Figure 1 for
changes in market conditions fol owing the related emergency lending announcements. For more details on individual
programs, see Federal Reserve Board, Funding, Credit, Liquidity, and Loan Facilities, at https://www.federalreserve.gov/funding-
credit-liquidity-and-loan-facilities.htm; and CRS Insight IN11327, Federal Reserve: Emergency Lending in Response to COVID-19,
by Marc Labonte.
Figure 1. Changing Market Conditions and Selected Federal Reserve Announcement Dates
Source: CRS based on S&P Capital IQ data.
Capital Markets and COVID-19 Product Series
CRS Report R46424, Capital Markets Volatility and COVID-19: Background and Policy Responses, by
Eva Su.
CRS Insight IN11421, Leveraged Loans and Collateralized Loan Obligations (CLOs): Recent
Developments and Policy Actions, by Eva Su.
CRS Insight IN11309, COVID-19 and Stock Market Stress, by Eva Su.
CRS Insight IN11275, COVID-19 and Corporate Debt Market Stress, by Eva Su.
CRS Insight IN11339, Securities and Exchange Commission (SEC) Actions to Mitigate the Impact of
COVID-19, by Gary Shorter.
CRS In Focus IF11320, Money Market Mutual Funds: A Financial Stability Case Study, by Eva Su.
Congressional Research Service
4
Federal Reserve Emergency Facilities and COVID-19
Product Series
CRS Report R46411, The Federal Reserve’s Response to COVID-19: Policy Issues, by Marc Labonte.
CRS Report R44185, Federal Reserve: Emergency Lending, by Marc Labonte.
CRS Insight IN11327, Federal Reserve: Emergency Lending in Response to COVID-19, by Marc
Labonte.
Author Information
Eva Su
Analyst in Financial Economics
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.
IN11429 · VERSION 1 · NEW