The economic disruptions associated with the COVID-19 pandemic sparked a global dash-for-cash as investors sold securities rapidly. This selling pressure occurred across advanced sovereign bond markets and caused a deterioration in market functioning, leading to a number of central bank actions. In this post, we highlight results from a recent paper in which we show that these disruptions occurred disproportionately in the U.S. Treasury market and offer explanations for why investors’ selling pressures were more pronounced and broad-based in this market than in other sovereign bond markets.
Efforts in the spring of 2020 to contain the spread of COVID-19 resulted in a sharp contraction in U.S. economic growth and an unprecedented, rapid rise in unemployment. While the first wave of the pandemic slowed the spring housing market, home sales rebounded sharply over the rest of the year, with strong gains in house prices. Given the rising house prices and continuing high unemployment, concerns arose that COVID-19 may have negatively affected first-time homebuyers. Using a new and more accurate measure of first-time homebuyers, we find that these buyers have not been adversely affected by the pandemic. At the same time, gains from lower mortgage rates have gone to existing homeowners and not to households purchasing their first home.
The COVID-19 pandemic has caused significant economic disruptions among U.S. corporations. In this post, we study the preliminary impact of these disruptions on the cash flow and leverage of public U.S. corporations using public filings through April 2020. We find that the pandemic had a negative impact on cash flow while also reducing corporations’ interest expenses. However, the cash flow shock far outpaced the benefits of lower interest payments, especially in industries that were disproportionately levered. Looking ahead, we find that a sizable share of U.S. corporations have interest expense greater than cash flow, raising concerns about those corporations’ ability to endure further liquidity shocks.
Aggregate reserves declined from nearly $3 trillion in August 2014 to $1.4 trillion in mid-September 2019, as the Federal Reserve normalized its balance sheet. This decline came to a halt in September 2019 when the Federal Reserve responded to turmoil in short-term money markets, with reserves fluctuating around $1.6 trillion in the early months of 2020. Then, in response to the COVID-19 pandemic, the Federal Reserve dramatically expanded its balance sheet, both directly, through outright purchases and repurchase agreements, and indirectly, as a consequence of the facilities to support market functioning and the flow of credit to the real economy. In this post, we characterize the increase in reserves between March and June 2020, describing changes to the distribution and concentration of reserves.
The March Survey of Consumer Expectations, which was fielded between March 2 and 31, records a substantial deterioration in financial and economic expectations, including sharp declines in household income and spending growth expectations.