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Good morning. I’m James Willhite, with Wednesday’s markets update as stocks continue to look for direction after a day of wild shifts.

Futures are up, after see-sawing through the early morning. Minutes are due from the Federal Reserve’s most recent meeting today, though in light of the fast-moving coronavirus crisis, their thinking at that time could seem uncommonly out of date.

Meanwhile, our Julia-Ambra Verlaine and Nick Timiraos explain why the Fed is trying to revive the market for municipal debt, and the challenges it faces in the effort.


Markets in a Minute

Markets Data

Overnight Developments

  • Dow futures wavered between gains and losses, following a roller-coaster session on Wall Street that saw a strong rally in the major benchmark indexes ending abruptly with a precipitous drop.
  • Read our full market wrap here

Why the Fed Is Fighting to Revive the Muni Market

By Julia-Ambra Verlaine and Nick Timiraos


Reviving the market for bonds sold by state and local governments is shaping up as one of the stiffest tests in the Federal Reserve’s campaign to restore financial normalcy.

The Fed has committed trillions of dollars to keep money flowing through markets vital to economic growth, including huge purchases of government and mortgage securities and new programs to backstop money-market funds and corporate-debt markets.

Those efforts have helped to fuel the markets’ partial recovery, say investors and portfolio managers, with the Dow Jones Industrial Average up 22% from its March 23 low.

But the central bank is limited in its efforts to revive the $4 trillion market for municipal securities, which back everything from school facilities to stadiums and highways. The Fed has so far intervened in only a few corners of the market, which is fraught with idiosyncrasies that make it difficult to categorize debt as investment-grade or risky, the line in the sand drawn by the Fed to ascertain what it backstops during a crisis.

The constraints stem in part from the coronavirus’s decimation of state and local finances, which could make the risks even harder to judge, and the Fed’s traditional deference to Congress in handling local government-financing decisions.

“The Fed doesn’t want to be in a position to say you have to raise taxes or cut pay to policemen or firemen” to secure or repay a loan from the central bank, said Scott Alvarez, who was the Fed’s general counsel from 2004 to 2017.

Fed and Treasury Department officials are working on a program to backstop some financing for states, according to people familiar with the matter, but the devil of any program will be in the details.

While the Fed has the authority to purchase municipal debt with maturities of six months or less, it hasn’t exercised that authority. A more likely route would be to establish an emergency-lending program to backstop longer-dated muni debt.

The $2 trillion rescue package that Washington approved last month includes $454 billion that the Treasury can use to absorb losses on any Fed lending facilities. That bill provided $200 billion in direct funding for states and cities, but they are likely to need another $300 billion to $600 billion, said Tom Kozlik, head of municipal credit at Hilltop Securities.

The aid to cities and states in the recent rescue package “will not be enough to offset the cost many states and municipalities are encountering,” said Boston Fed President Eric Rosengren. The Fed can help with financial markets, but those efforts will be less effective without more direct aid, he said.

For a longer version of this article online, follow this link.

Will Fed interventions succeed in reviving the muni market? Let us know by replying to this email. Your comments may be edited before publication in future newsletters, and please make sure to include your name and location.

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Market Facts

  • Indonesia sold $4.3 billion of bonds, including one it won’t pay off for 50 years, in the latest sign that investors are regaining their appetite for risk. Gas-producing Qatar also sold bonds Tuesday, and a number of companies, including some with riskier credit ratings, have sold new debt in the U.S.
  • Two-year and 10-year Swiss bond yields have risen higher than those on rival German bonds for the first time in more than a decade. Yields on Swiss government bonds are still in negative territory but have risen sharply in recent weeks, as the Swiss National Bank’s response to the coronavirus pandemic has been less aggressive than efforts by the European Central Bank and the U.S. Federal Reserve.
  • On this day in 1890, a backwoods prospector named Leonidas (Lon) Merritt scratched together $918 to buy 600 acres of land in the Mesabi Range near Duluth, Minn., at a land auction. He soon hit the world’s richest vein of fine iron ore, cutting raw-material costs for the U.S. steel industry from $5-$6 per ton of ore to just $2 to $3 per ton, a 60% drop in five years. But Merritt overexpanded his Lake Superior Consolidated Iron Mines Co., and John D. Rockefeller ended up snatching it away for barely over $1 million. By 1905, Minnesota would produce 51% of all iron ore in the U.S.
Key Events

Chicago Fed President Charles Evans speaks to the Economic Club of Chicago’s Virtual Program at 11 a.m. ET.

The Federal Reserve releases minutes from its March 15 meeting at 2 p.m.

The Bank of Japan holds its quarterly meeting of regional branch managers via videoconference at 8:30 p.m.







What We’ve Heard on the Street

“Over the coming months, headline consumer price inflation will be next to useless for understanding either the economy or how policy makers might act to support it.”


Stocks to Watch

Amazon: The e-commerce giant will halt a delivery service for non-Amazon packages, according to people familiar with the matter, as it re-evaluates the nascent offering that competes directly with FedEx and UPS.

Levi Strauss: The apparel company withdrew its financial forecast due to uncertainty from the coronavirus, as it reported earnings that included a 5% increase in sales for the period covering the holidays.

Williams: An influential proxy adviser has taken the unusual step of urging shareholders to withhold votes for the chairman of the pipeline operator after it adopted a poison pill to fend off unwanted suitors.


About Us

We want to be the first place you go to get ready for the opening bell every day. This newsletter is written and edited by James Willhite (@jimwillhite; in London.

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