March 23, 2020 — Interest Rates are Effectively at Zero


In an attempt to mitigate slowing economic growth form the effects of the COVID-19 pandemic, the Fed cut interest rates by 100 bps last Sunday.  This has taken rates down to effectively zero, their lowest since 2015.  The bank also went ahead with a huge $700 billion quantitative easing program.

On Friday, the Fed announced it will offer $1 trillion of overnight loans a day through the end of March to large banks to calm markets.  That is over and above the $1 trillion in 14-day loans it is offering every week. They are also buying back Treasury bonds and mortgage-backed securities.

Until the virus is seen as being under control, there will be great uncertainty in the markets.  But, as fears abate, it could be an unprecedented opportunity for companies to lock into extremely low rates by hedging their long term debt obligations through the use of interest rate swaps.

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