The Federal Reserve averted a year-end liquidity crunch

Treasury yields fell slightly on Wednesday as investors flocked back into risk assets after China unveiled measures to rein in the spread of a deadly virus. The yield on the benchmark 10-year Treasury note, was higher at around 1.7778%, while the yield on the 30-year Treasury bond rose to 2.2351%. The outbreak of a new strain of coronavirus in China’s Wuhan region sent Treasury yields to a two-week low on Tuesday. (CNBC)

The Federal Reserve averted a year-end liquidity crunch by pumping $256 billion into repurchase markets. The consequences are now rippling across the globe. The extra liquidity has led to a sharp drop in the costs to borrow dollars to swap into other currencies, upending the economics of cross-border investment flows. Japanese bonds have become less attractive to U.S.-based investors, while yen funded investors now find European bonds and U.S. credit more alluring.

Source: Danareksa Sekuritas Debt Research
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