For instance, when stocks fall sharply, prices of U.S. government bonds — the haven of choice for global investors — should go up, helping to mitigate the losses on stocks. As the S&P 500 collapsed, bond prices fell sharply too — pushing yields, which move in the opposite direction, up — and breaking down perhaps the most basic relationship in markets. It could make the currency-swap lines it has in place with other global central banks more attractive, ensuring that foreign markets have plenty of dollars flowing through them. Back then, the Fed jumped into the mortgage-backed security market, providing an escape valve for rapidly building pressure. The question is what would be most helpful — and because it is hard to know exactly what is going on, that is a matter up for some debate.

Source: New York Times March 12, 2020 13:39 UTC