Morgan Stanley: COVID-19 and Its Effects on the US Economic Outlook

www.newyorkfed.org/medialibrary/media/research/advisory_panel/eap/eap_2020_zentner-presentation.pdf?la=en

As of April 9, financial conditions remained tight, but had eased somewhat after the Fed’s announcement of expanded credit facilities.

• Broad financial conditions remain about 138bp tighter since the middle of February, and excluding the effect of lower Treasury yields financial conditions remain about 180bp tighter of that same period. But notably, this is the easiest level for both broad financial conditions and ex Treasuries FCI since March 13.

• Portfolio balance channel focus: The Treasury will issue significant amounts of new Treasuries to finance the $2tn CARES Act, and we expect the Fed to keep buying Treasuries in QE ($4-$5tn total, in our view). We expect Treasury issuance to complement Fed buying with the Fed switching to buying more back-end Treasuries and the Treasury issuing in the front end (seeing its current WAM as appropriate).