[New York Close] Fed Leads Bazooka Bond Surge, Biggest in 46 Years

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The large-scale liquidity injection by the U.S. central bank protected the New York stock market amid the storm of massive unemployment caused by the novel coronavirus infection (COVID-19).

On the 9th (local time) at the New York stock market, the Dow Jones Industrial Average rose 285.80 points (1.22%) to close at 23,719.37, the S&P 500 index increased by 39.84 points (1.45%) to 2,789.82, and the Nasdaq index rose 62.67 points (0.77%) to 8,153.58.

The New York stock market closed the week on this day due to the Easter holiday. This week, the Dow index recorded a 12.7% increase, the S&P 500 index rose by 12.1%, and the weekly gain of the S&P 500 index was the largest in 46 years.

Before the market opened, the U.S. Department of Labor announced that new unemployment claims for the previous week (March 29 to April 4) reached 6.61 million, putting pressure on investor sentiment. The number of unemployed over the past three weeks reached 16.8 million.

Amid market turmoil, the U.S. central bank, the Federal Reserve (Fed), stepped in. The Fed announced in a statement that it would supply a massive liquidity of $2.3 trillion (2,800 trillion won) through corporate loans and purchases of corporate bonds and municipal bonds.

In particular, the decision to purchase junk bonds and collateralized loan obligations (CLOs), which had recently raised concerns due to the economic downturn, was evaluated as a decisive move that stabilized investor sentiment.

With about 30% of housing rent payments halted due to unemployment, the Fed’s purchase of loan-related bonds and speculative-grade corporate bonds aimed to block the negative impact on the market.

The economic media CNBC described the Fed as "firing a bigger bazooka" and called it "the most aggressive Fed."

Fed Chair Jerome Powell did not stop there and directly communicated with the market. He attended a webinar that day and said, "Once COVID-19 disappears, the U.S. economy will recover strongly," and also stated his position to "maintain zero interest rates until there is confidence."

Due to the large-scale liquidity supply, gold prices rose sharply. On that day, June delivery gold on the New York Commodity Exchange closed at $1,752.80 per ounce, up 4.1% ($68.50) from the previous day.

Mark Bristow, CEO of gold mining company Barrick Gold, evaluated, "Large-scale cash liquidity has been supplied over the past six weeks. This is very good news for gold."

Oil prices showed a volatility of up to 20% during the day but eventually plummeted. On the New York Mercantile Exchange (NYMEX), May delivery West Texas Intermediate (WTI) crude oil closed at $22.76 per barrel, down 9.3% ($2.33). This was due to expectations that the production cut would fall short.