On March 19, the European Central Bank launched a 750 billion euro emergency bond buying scheme.
On March 23, the U.S. Federal Reserve pledged to buy corporate bonds, including select junk securities, for the first time ever. U.S. corporate yields tumbled 80 bps in a week and are now at record lows.The crisis forced a U-turn on budget frugality, notably in Germany which on March 23 announced a spending package of up to 750 billion euros. Britain also reversed “austerity”, with 133 billion pounds in pledges.
On May 18 came a proposal with potential to change euro area fortunes: a 750 billion euro European Union recovery fund, to be financed via joint debt issuance. The move, pivotal for European cohesion, has seen 10-year borrowing costs for euro zone weak link, Italy, tumble 50 bps.The March meltdown fuelled a dash for dollars, blowing out swap premia for the greenback. Euro-dollar three-month swap spreads surged above 120 bps on March 17, the widest since 2011.
Strains eased after the Fed opened dollar swap lines with major central banks, later expanding the facility. In early June, the dollar had slipped to March 10 levels.
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