Fed expanding Municipal Liquidity Facility

The Federal Reserve has expanded the scope and duration of its Municipal Liquidity Facility. The Fed is broadening its help for local governments, offering to buy bonds of up to 3-years duration from counties with as few as 500,000 residents and cities with as few as 250,000 residents.

Reuters reports that the initial size limits of 2 million for counties and 1 million for cities had restricted the Fed program to a handful of large local governments - it will now be available to dozens.

Key notes

Fed expands scope and duration of municipal liquidity facility.
Fed expands duration of eligible securities to 3 years up from 24 months previously.
Fed is to consider expanding facility to include limited number of government entities that issue revenue bonds.
Fed to lend up to $500 bln under municipal liquidity facility on $35 bln of treasury equity.
Fed expands scope of municipal liquidity facility to cover counties with populations of at least 500,000, down from 2 mln, and cities of 250,000 residents, down from 1 mln.
Fed says changes to municipal liquidity facility will allow 'substantially more' entities to borrow.
Fed says borrowers under municipal liquidity facility must have had investment grade rating from 2 rating organizations as of April 8.

Market implications

Additional support for the economy is seen as a positive, for now. Meanwhile, the Fed meets Tuesday and Wednesday." No further developments on QE or interest rates are expected, but we expect Powell to stress that the Fed is not out of ammunition," analysts at ANZ Bank argued.