MetWest Total Return Bond Fund might work for the first group, and its MetWest Flexible Income Fund for the second.

A puzzle for all bond-fund investors is how the end of the Covid-19 pandemic might affect interest rates.

Rates usually rise when the economy grows, as it’s expected to do as the world emerges from the pandemic. As that happens, inflation may rise, which could stifle a long bull market in bonds. Bond prices rise as interest rates fall.

Yet renewed inflation has been erroneously predicted before, and Jerome Powell, the chair of the Federal Reserve, has made clear that the bank isn’t rushing to raise the short-term rates it controls.

For investors who are counting on their bond funds for income, continued low rates could create a temptation to court risk.

A more patient approach is prudent, said Mary Ellen Stanek, chief investment officer for Baird Advisors, which oversees the Baird Funds.

“You don’t own bonds for excitement and drama,” she said. “You own them for predictability and lower volatility.”

Ms. Jones of Schwab warned, too, against seeking excessive risk. She suggested investors instead rethink how they take cash from their portfolios.

“In a year when your stocks are up 20 percent and your bonds are up 2, you may want to pull out some of those capital gains and put them in your cash bucket,” she said. “Say you’re looking to generate 6 percent overall, and you’ve made 20 percent in stocks. If you have excess above your plan, you can look at that as potential income.”

No matter what path investors choose, they should always pay close attention to the costs of funds and E.T.F.s, said Jennifer Ellison, a financial adviser at Bingham, Osborn & Scarborough in San Francisco.

“Costs are really important, especially with yields where they are,” since those costs will eat up much of that scant yield, she said. “If you’re a retail investor and you’re buying a loaded bond fund, you’re giving all your yield away up front.”


View Source

How Debt and Climate Change Pose a ‘Systemic Risk to the Global Economy’

How does a country deal with climate disasters when it’s drowning in debt? Not very well, it turns out. Especially not when a global pandemic clobbers its economy.

Take Belize, Fiji and Mozambique. Vastly different countries, they are among dozens of nations at the crossroads of two mounting global crises that are drawing the attention of international financial institutions: climate change and debt.

They owe staggering amounts of money to various foreign lenders. They face staggering climate risks, too. And now, with the coronavirus pandemic pummeling their economies, there is a growing recognition that their debt obligations stand in the way of meeting the immediate needs of their people — not to mention the investments required to protect them from climate disasters.

The combination of debt, climate change and environmental degradation “represents a systemic risk to the global economy that may trigger a cycle that depresses revenues, increases spending and exacerbates climate and nature vulnerabilities,” according to a new assessment by the World Bank, International Monetary Fund and others, which was seen by The Times. It comes after months of pressure from academics and advocates for lenders to address this problem.

downgraded its creditworthiness, making it tougher to get loans on the private market. The International Monetary Fund calls its debt levels “unsustainable.”

nearly $600 billion in debt service payments over the next five years. Both the World Bank and the International Monetary Fund are important lenders, but so are rich countries, as well as private banks and bondholders. The global financial system would face a huge problem if countries faced with shrinking economies defaulted on their debts.s

“We cannot walk head on, eyes wide open, into a debt crisis that is foreseeable and preventable,” the United Nations Secretary General, António Guterres, said last week as he called for debt relief for a broad range of countries. “Many developing countries face financing constraints that mean they cannot invest in recovery and resilience.”

The Biden administration, in an executive order on climate change, said it would use its voice in international financial institutions, like the World Bank, to align debt relief with the goals of the Paris climate agreement, though it hasn’t yet detailed what that means.

flurry of proposals from economists, advocates and others to address the problem. The details vary. But they all call, in one way or another, for rich countries and private creditors to offer debt relief, so countries can use those funds to transition away from fossil fuels, adapt to the effects of climate change, or obtain financial reward for the natural assets they already protect, like forests and wetlands. One widely circulated proposal calls on the Group of 20 (the world’s 20 biggest economies) to require lenders to offer relief “in exchange for a commitment to use some of the newfound fiscal space for a green and inclusive recovery.”

debts soared, including to China, and the country, whose very existence is threatened by sea level rise, pared back planned climate projects, according to research by the World Resources Institute.

The authors proposed what they called a climate-health-debt swap, where bilateral creditors, namely China, would forgive some of the debt in exchange for climate and health care investments. (China has said nothing publicly about the idea of debt swaps.)

sinking under huge debts, including secret loans that the government had not disclosed, when, in 2019, came back-to-back cyclones. They killed 1,000 people and left physical damages costing more than $870 million. Mozambique took on more loans to cope. Then came the pandemic. The I.M.F. says the country is in debt distress.

Six countries on the continent are in debt distress, and many more have seen their credit ratings downgraded by private ratings agencies. In March, finance ministers from across Africa said that many of their countries had spent a sizable chunk of their budgets already to deal with extreme weather events like droughts and floods, and some countries were spending a tenth of their budgets on climate adaptation efforts. “Our fiscal buffers are now truly depleted,” they wrote.

In developing countries, the share of government revenues that go into paying foreign debts nearly tripled to 17.4 percent between 2011 and 2020, an analysis by Eurodad, a debt relief advocacy group found.

Research suggests that climate risks have already made it more expensive for developing countries to borrow money. The problem is projected to get worse. A recent paper found climate change will raise the cost of borrowing for many more countries as early as 2030 unless efforts are made to sharply reduce greenhouse gas emissions.

View Source

Minority Entrepreneurs Struggled to Get Small-Business Relief Loans

Of the 1,300 Paycheck Protection Program loans that Southern Bancorp made last year, many went to customers who had been turned away by larger banks, Mr. Williams said.

In a recent Federal Reserve survey, nearly 80 percent of small-business owners who are Black or of Asian descent said their companies were in weak financial shape, compared with 54 percent of white business owners. And Black owners face unique challenges. While owners from all other demographics told the Fed that their main problem at the moment was low customer demand, Black respondents cited a different top challenge: access to credit.

When Jenell Ross, who runs an auto dealership in Ohio, sought a Paycheck Protection Program loan, her longtime bank told her to look elsewhere — a message that large banks like Bank of America, Citi, JPMorgan Chase and Wells Fargo delivered to many of their customers in the program’s frenzied early days.

Days later, she obtained a loan from Huntington Bank, a regional lender, but the experience stung.

“Historically, access to capital has been the leading concern of women- and minority-owned businesses to survive, and during this pandemic it has been no different,” Ms. Ross, who is Black, told a House committee last year.

Community lenders and aid organizations took a shoe-leather approach to filling the gaps.

Last year, the American Business Immigration Coalition, an advocacy group, worked with local nonprofits to create a “community navigator” program that sent outreach workers to Black, minority and rural businesses in Florida, Illinois, South Carolina and Texas. They plowed through roadblocks, Whac-a-Mole-style.

Language barriers were common. Many business owners had never sought a bank loan before. Several didn’t have an email address and needed help creating one. Some hadn’t filed taxes; the coalition hired two accountants to help people sort out their financials.

“Our folks literally went door to door and walked people through the process,” said Rebecca Shi, the group’s executive director. “It’s time-consuming.”

View Source

China’s New Rules Worry Foreign Banks and Companies

SHANGHAI — To defend against accusations by Washington and others that it doesn’t play fair on trade, Beijing could point to the banks. Chinese leaders have been steadily lowering the barriers they had erected around the country’s vast financial system, giving Wall Street and European lenders a greater shot at winning business in the world’s second-largest economy.

Now the walls are going up again.

New Chinese rules have sharply limited the ability of foreign banks to do business there, making them less competitive against local rivals, according to three people with knowledge of the directives. One set of rules enacted in December and January restricts how much money foreign banks can transfer into China from overseas. Another that took effect on Wednesday required many foreign banks to make fewer loans and sell off bonds and other investments, two of the people said.

The new rules have caused a stir among the global bank executives and foreign companies in China that depend on those lenders for money, the people said. Among other concerns, they worry that the rules could make foreign-owned businesses more dependent on China’s state-run banking system for the money they need to grow. That dependence could give Beijing another potential pressure point to use as it squares off against Washington and others over trade, human rights, geopolitics and other sticky issues.

Banks and trade groups have been reluctant to speak publicly for fear of triggering further regulatory measures. But in a January letter to China’s central bank that was reviewed by The New York Times, the European Union Chamber of Commerce in China raised concerns about the money transfer limits.

encouraged boycotts of foreign businesses like H&M, the Swedish retailer, and Nike, the American athletic brand, after they vowed not to use cotton made by forced labor in Xinjiang.

The reasons behind China’s new banking rules aren’t clear, though they appear to have little to do with the tense political environment. They seem to be aimed instead at stemming big, potentially disruptive flows of money into the country.

surpassed the United States last year by taking in $163 billion worth of direct investments in factories, office buildings, companies and other assets.

Big money flows into a country can also make its currency rise in value — and China appears to working hard to counter that.

China’s currency, the renminbi, rose sharply in value against the U.S. dollar in the second half of last year. In May, $1 was worth about 7.15 renminbi. By year’s end, $1 bought about 6.5 renminbi. That rise was bad news for China’s exporters because it made their goods less competitive overseas.

But since the Chinese government enacted its new banking rules, the currency has begun to weaken. It now stands at about 6.6 renminbi to the dollar.

The new rules alone aren’t likely significant enough to account for the sudden halt to the renminbi’s rise. But they join other moves made by the Chinese government in recent months that have made moving money into China slightly harder and moving it out slightly easier. Combined, they could put pressure on the renminbi to weaken.

“This has started since last October, and they are all on the same side,” said Michael Pettis, a finance professor at Peking University.

Outside factors have likely contributed to the renminbi’s shift, including the resurgence of the U.S. economy, which could lead investors to steer their money there instead.

Chinese officials have stressed in recent months that their country is open to foreign investment, particularly banking.

“The inflow of foreign capital is inevitable, but so far, the scale and speed are still within our control,” Guo Shuqing, the chairman of the China Banking and Insurance Regulatory Commission, which has worked closely with the central bank on the new policies, said during a news conference on March 2. “We continue to encourage foreign financial institutions to enter China for shared development.”

In an unsuccessful attempt to head off a trade war with the Trump administration, China gradually relaxed or removed limits on foreign banks, insurers and money management firms. Big banks responded by expanding their mainland operations, including Citigroup, Credit Suisse, Goldman Sachs, HSBC, J.P. Morgan Chase, Morgan Stanley and UBS.

The global financial environment has encouraged money flows into China. With near zero interest rates elsewhere, international banks borrowed cheaply abroad. Until the new rules kicked in, they could send that money to China and lend or invest it there, reaping higher returns.

The first of the new rules, issued in a memo to banks in December, appeared to be aimed at that trend. That rule limited the ability of global banks to raise money overseas and move it into China. The rule is being phased in through November but was written in a way that has already had a big effect on financial contracts involving bets on the renminbi’s direction, said the people familiar with the notice.

Another measure communicated directly by Chinese regulators to foreign banks three weeks ago concerned the size of bank balance sheets, two of the people said.

Concerned about the rapid growth of credit in the Chinese economy, regulators ordered domestic and foreign banks to limit their balance sheets by Wednesday night to show only slight growth from last year. Because China has recently loosened limits on foreign purchases of bonds, many foreign banks had been buying more bonds for sale to foreign customers, expanding their balance sheets.

The full impact of the new rules will depend on how long they stay in place. Eswar Prasad, a Cornell University economist, predicted that China would eventually resume opening up to foreign financial institutions.

“They don’t want to scare off foreign investors in the medium to long term,” he said.

View Source

Family Federal Education Loan Borrowers Get a Reprieve if They Have Defaulted

About a million student loan borrowers who were left out of earlier relief efforts are getting a reprieve — but only if they defaulted on their loans.

The Education Department said on Tuesday that it will temporarily stop collecting on defaulted loans that were made through the Family Federal Education Loans program and are privately held.

“Our goal is to enable these borrowers who are struggling in default to get the same protections previously made available to tens of millions of other borrowers,” said Education Secretary Miguel Cardona.

The change, however, still leaves millions of other borrowers in that program responsible for payments while the bulk of the country’s student loan borrowers have had theirs paused.

borrowers who are still making payments on those privately held F.F.E.L. loans or have fallen only a few months behind. There are around 5.4 million borrowers in that category, who together owe $134 billion, according to Education Department data.

Tuesday’s announcement is intended to prevent defaulted borrowers from having their tax refunds seized by the Treasury Department through a program that is often used to collect overdue student loan debts. Any seized refunds or wage garnishments that were taken since March 2020 will be retroactively refunded, the Education Department said.

The freeze will extend through Sept. 30, when collections are scheduled to restart on all federal student loans. Nearly everyone who is eligible for the freeze has taken advantage of it: Of the nearly 43 million people with federally owned loans, only 400,000 are still making payments, according to Education Department data.

View Source

Fear of Inflation Finds a Foothold in the Bond Market

The so-called bond vigilantes may be back, 30 years after they led a sell-off in Treasury securities over the prospect of higher government spending by a new Democratic administration.

The Federal Reserve has downplayed the risk of inflation, and many experts discount the danger of a sustained rise in prices. But there is an intense debate underway on Wall Street about the prospects for higher inflation and rising interest rates.

Yields on 10-year Treasury notes have risen sharply in recent weeks, a sign that traders are taking the inflation threat more seriously. If the trend continues, it will put bond investors on a collision course with the Biden administration, which recently won passage of a $1.9 trillion stimulus bill and wants to spend trillions more on infrastructure, education and other programs.

recall the 1990s, when yields on Treasury securities lurched higher as the Clinton administration considered plans to increase spending. As a result, officials soon turned to deficit reduction as a priority.

coined the term bond vigilante in the 1980s to describe investors who sell bonds amid signs that fiscal deficits are getting out of hand, especially if central bankers and others don’t act as a counterweight.

As bond prices fall and yields rise, borrowing becomes more expensive, which can force lawmakers to spend less.

“They seem to mount up and form a posse every time inflation is making a comeback,” Mr. Yardeni said. “Clearly, they’re back in the U.S. So while it’s fine for the Fed to argue inflation will be transitory, the bond vigilantes won’t believe it till they see it.”

Yields on the 10-year Treasury note hit 1.75 percent last week before falling back this week, a sharp rise from less than 1 percent at the start of the year.

plenty of slack in the economy.

That’s how Alan S. Blinder, a Princeton economist who was an economic adviser to President Bill Clinton and is a former top Fed official, sees it. Even if inflation goes up slightly, Mr. Blinder believes the Fed’s target for inflation, set at 2 percent, is appropriate.

“Bond traders are an excitable lot, and they go to extremes,” he said. “If they are true to form, they will overreact.”

Indeed, there have been rumors of the bond vigilantes’ return before, like in 2009 as the economy began to creep out of the deep hole of the last recession and rates inched higher. But in the ensuing decade, both yields and inflation remained muted. If anything, deflation was a greater concern than rising prices.

It is not just bond traders who are concerned. Some of Mr. Blinder’s colleagues from the Clinton administration are warning that the conventional economic wisdom hasn’t fully accepted the possibility of higher rates or an uptick in prices.

Frequently Asked Questions About the New Stimulus Package

The stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more.

Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read more

This credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.

There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.

The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.

Robert E. Rubin, Mr. Clinton’s second Treasury secretary, echoed that concern but took pains to support the stimulus package.

“There is a deep uncertainty,” Mr. Rubin said in an interview. “We needed this relief bill, and it served a lot of useful purposes. But we now have an enormous amount of stimulus, and the risks of inflation have increased materially.”

relatively loose for the foreseeable future. If higher prices do materialize, the Fed could halt asset purchases and raise rates sooner.

“We’re committed to giving the economy the support that it needs to return as quickly as possible to a state of maximum employment and price stability,” Mr. Powell said at a news conference last week. That help will continue “for as long as it takes.”

While most policymakers expect faster growth, falling unemployment and a rise in inflation to above 2 percent, they nonetheless expect short-term rates to stay near zero through 2023.

But the Fed’s ability to control longer-term rates is more limited, said Steven Rattner, a veteran Wall Street banker and former New York Times reporter who served in the Obama administration.

“At some point, if this economy takes off bigger than any one of us expect, the Fed will have to raise rates, but it’s not this year’s issue and probably not next year’s issue,” he said. “But we are in uncharted waters, and we are to some extent playing with fire.”

The concerns about inflation expressed by Mr. Rattner, Mr. Rubin and others has at least a little to do with a generational angst, Mr. Rattner, 68, points out. They all vividly remember the soaring inflation of the 1970s and early 1980s that prompted the Fed to raise rates into the double digits under the leadership of Paul Volcker.

The tightening brought inflation under control but caused a deep economic downturn.

“People my age remember well the late 1970s and 1980s,” Mr. Rattner said. “I was there, I covered it for The Times, and lived through it. Younger people treat it like it was the Civil War.”

Some younger economists, like Gregory Daco of Oxford Economics, who is 36, think these veterans of past inflation scares are indeed fighting old wars. Any rise in inflation above 2 percent is likely to be transitory, Mr. Daco said. Bond yields are up, but they are only returning to normal after the distortions caused by the pandemic.

“If you have memories of high inflation and low growth in the 1970s, you may be more concerned with it popping up now,” he said. “But these are very different circumstances today.”

View Source

Biden Administration Ramps Up Debt Relief Program to Help Black Farmers

Representative James E. Clyburn, a South Carolina Democrat who played an influential role in helping Mr. Biden secure the party’s presidential nomination, has also been a major voice highlighting the experience of Black farmers and helped drive the stimulus provisions, according to congressional staff aides.

The funding aims to address longstanding problems with discrimination at the Agriculture Department — particularly its refusal to grant farmers of color the same access to capital that helped tide over white farmers during difficult periods in history. Minority farmers have confronted other issues, like a lack of access to legal services that have complicated farm inheritances, and a lack of public investment in rural communities and on reservations, including in the water supply and roads and transportation to get farm products to market.

Those factors led to a substantial loss of land. While the number of farmers in the United States has fallen sharply over the past century as farms mechanized and more people found work in factories and offices, Black farmers suffered disproportionately.

According to Agriculture Department data, in 1920, the United States had 925,708 Black farmers, making up 14 percent of farmers in the country. But by 2017, only 35,470 of the nation’s more than two million farms were run by Black producers, or 1.7 percent.

Joe Patterson, 70, whose family has farmed in the Mississippi Delta for decades, said discriminatory lending had forced many Black farmers around him out of business over the years, and led to some lean times for his own family.

Frequently Asked Questions About the New Stimulus Package

The stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more.

Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read more

This credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.

There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.

The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.

“When it all boiled down to it, it was a lack of funds that kept the Black farmers down,” said Mr. Patterson, who spoke by phone from the cab of a tractor he had pulled over to the side of the road. “If we had the same amount of investment that the other farmers had, a lot of Black farmers would still be farming this date.”

He added, “But because they didn’t have those funds, each year would get worse and worse.”

Anthony Daniels, a Democrat in Alabama’s state legislature who serves on the board of One Country Project, a Democratic group focused on rural issues, said that many Black farmers were still suffering from burdensome debt, and that the stimulus provisions would help them pay off loans and related taxes.

View Source

Stock Rally Poses Question: When Does a Bull Become a Bubble?

The bull market turned a year old on Tuesday, a testament to the unbridled enthusiasm that let investors shrug off the economic carnage of the pandemic and buy stocks — and pretty much anything else.

Since the S&P 500 scraped bottom on March 23 last year, the blue-chip index has posted a rally of nearly 75 percent, even with a 0.8 percent fall on Tuesday. Tesla’s stock is up more than 650 percent, while true believers have pushed up shares of GameStop by over 4,500 percent. Bitcoin is booming, and so are even more esoteric assets like NFTs.

It’s enough to pose a question that would have seemed unfathomable a year ago.

“Is this a bubble?” said Garry Evans, chief strategist for global asset allocation at BCA Research. “I would say there are certainly pockets of the market that look bubbly.”

Mr. Evans said he didn’t see “a generalized bubble” but believed that individual stocks — like GameStop, which was driven up in January by retail traders gathering on sites like Reddit — and cryptocurrencies were overvalued.

an increase in stock-buying by average investors. From the most recent round of stimulus alone, Deutsche Bank recently estimated, some $170 billion could flow into the stock market.

 stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more.

Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read more

This credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.

There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.

The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.

Nikolaos Panigirtzoglou, a market strategist with J.P. Morgan in London, said the wave of investment activity sweeping the country was a glaring reason to worry that the rally could falter.

U.S. households are now more heavily invested in stock than ever before, even during the peak of the dot-com bubble, he said. “If that goes away or reverses, then the equity market will have a problem,” he said.

And on Monday, even a Goldman Sachs research note titled “Bubble Puzzle: A Guide to Bubbles and Why We Are Not in One” acknowledged that some indicators of retail trading activity were “worrying.” It mentioned the surging levels of daily trading in stocks and increased buying of tiny amounts of stock options by individuals.

The conditions for a bubble are clearly present, said John D. Turner, a professor of financial history at Queen’s University Belfast. Mr. Turner recently co-wrote — along with his colleague William Quinn — a book titled “Boom and Bust: A Global History of Financial Bubbles.”

To make them, he said, you need three key ingredients, plus a spark. The ingredients are ease of trading, access to credit, and mass speculation — all of which are in ready supply right now.

The spark, he said, is the unknown factor. It could be a change in government policy, like the push to supercharge homeownership in the 1990s and 2000s. Or a major technological development, the way electrification contributed to a boom in the 1920s.

So the conditions, Mr. Turner said, are all here.

“It smells like a bubble,” he said. “If I had to put money on it, it looks like a bubble.”

View Source

Powell Downplays Inflation Risks as Yellen Foreshadows Future Spending

The economy is healing, the nation’s top two economic officials told lawmakers on Tuesday, but workers and businesses will need continued government support to rebound from the pandemic — and one of the officials, Jerome H. Powell, the Federal Reserve chair, batted back concerns that vigorous policy help could stoke inflation.

Mr. Powell testified Tuesday before the House Financial Services committee alongside Janet L. Yellen, his predecessor at the Fed and now the Treasury secretary, in their first side-by-side appearance in their current roles. In hopes of fueling a rapid rebound in spending and hiring, the government has been spending aggressively and the Fed is keeping borrowing costs at rock bottom.

That all-in approach has helped to avert the most dire potential economic outcomes, Mr. Powell told lawmakers, and it has not created grave inflation risks in the process.

Asked whether President Biden’s recently passed $1.9 trillion spending package to combat the virus could cause prices to shoot higher — especially as the administration eyes plans to spend as much as $3 trillion more on an infrastructure package — Mr. Powell said the Fed did not fear a jump in inflation.

administration’s plans to propose another big spending package on infrastructure, which could be financed in part by tax increases.

She was pressed by Republican lawmakers about how higher taxes would affect consumers and small businesses. “I think a package that consists of investments in people, investments in infrastructure, will help to create good jobs in the American economy,” Ms. Yellen replied, “and changes in the tax structure will help to pay for those programs.”

And she argued that tax increases would be necessary to back up the package.

“We do need to raise revenues in a fair way to support the spending that this economy needs to be competitive and productive,” she said.

 stimulus payments would be $1,400 for most recipients. Those who are eligible would also receive an identical payment for each of their children. To qualify for the full $1,400, a single person would need an adjusted gross income of $75,000 or below. For heads of household, adjusted gross income would need to be $112,500 or below, and for married couples filing jointly that number would need to be $150,000 or below. To be eligible for a payment, a person must have a Social Security number. Read more.

Buying insurance through the government program known as COBRA would temporarily become a lot cheaper. COBRA, for the Consolidated Omnibus Budget Reconciliation Act, generally lets someone who loses a job buy coverage via the former employer. But it’s expensive: Under normal circumstances, a person may have to pay at least 102 percent of the cost of the premium. Under the relief bill, the government would pay the entire COBRA premium from April 1 through Sept. 30. A person who qualified for new, employer-based health insurance someplace else before Sept. 30 would lose eligibility for the no-cost coverage. And someone who left a job voluntarily would not be eligible, either. Read more

This credit, which helps working families offset the cost of care for children under 13 and other dependents, would be significantly expanded for a single year. More people would be eligible, and many recipients would get a bigger break. The bill would also make the credit fully refundable, which means you could collect the money as a refund even if your tax bill was zero. “That will be helpful to people at the lower end” of the income scale, said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting. Read more.

There would be a big one for people who already have debt. You wouldn’t have to pay income taxes on forgiven debt if you qualify for loan forgiveness or cancellation — for example, if you’ve been in an income-driven repayment plan for the requisite number of years, if your school defrauded you or if Congress or the president wipes away $10,000 of debt for large numbers of people. This would be the case for debt forgiven between Jan. 1, 2021, and the end of 2025. Read more.

The bill would provide billions of dollars in rental and utility assistance to people who are struggling and in danger of being evicted from their homes. About $27 billion would go toward emergency rental assistance. The vast majority of it would replenish the so-called Coronavirus Relief Fund, created by the CARES Act and distributed through state, local and tribal governments, according to the National Low Income Housing Coalition. That’s on top of the $25 billion in assistance provided by the relief package passed in December. To receive financial assistance — which could be used for rent, utilities and other housing expenses — households would have to meet several conditions. Household income could not exceed 80 percent of the area median income, at least one household member must be at risk of homelessness or housing instability, and individuals would have to qualify for unemployment benefits or have experienced financial hardship (directly or indirectly) because of the pandemic. Assistance could be provided for up to 18 months, according to the National Low Income Housing Coalition. Lower-income families that have been unemployed for three months or more would be given priority for assistance. Read more.

“While the economic fallout has been real and widespread, the worst was avoided by swift and vigorous action,” he said.

Mr. Powell and Ms. Yellen faced a volley of questions on how financial regulators should deal with climate change risks. Republicans have expressed concern that the Fed’s growing attention to climate-related issues in its role as a bank overseer could end up making it harder or more expensive for carbon-heavy companies to get loans.

“It’s really very early days in trying to understand what all of this means,” Mr. Powell said, noting that many large banks and large industrial companies were already thinking about and beginning to disclose how climate might affect them over time. “We have a job,” he said, “which is to ensure that the institutions we regulate are resilient to the risks that they’re running.”

Financial Stability Climate Committee “to identify, assess and address” climate-related risks to financial stability.

The new body will approach its task in a way that “considers the potential for complex interactions across the financial system,” Ms. Brainard said, rather than just the risks to individual companies.

That’s the kind of oversight some lawmakers fear.

“Linking hypothetical climate scenarios to risks to the entire financial system seems to me highly speculative,” Representative Andy Barr, a Republican from Kentucky, told Mr. Powell and Ms. Yellen during the Tuesday hearing.

View Source

The Financial Crisis the World Forgot

By the middle of March 2020 a sense of anxiety pervaded the Federal Reserve. The fast-unfolding coronavirus pandemic was rippling through global markets in dangerous ways.

Trading in Treasurys — the government securities that are considered among the safest assets in the world, and the bedrock of the entire bond market — had become disjointed as panicked investors tried to sell everything they owned to raise cash. Buyers were scarce. The Treasury market had never broken down so badly, even in the depths of the 2008 financial crisis.

The Fed called an emergency meeting on March 15, a Sunday. Lorie Logan, who oversees the Federal Reserve Bank of New York’s asset portfolio, summarized the brewing crisis. She and her colleagues dialed into a conference from the fortresslike New York Fed headquarters, unable to travel to Washington given the meeting’s impromptu nature and the spreading virus. Regional bank presidents assembled across America stared back from the monitor. Washington-based governors were arrayed in a socially distanced ring around the Fed Board’s mahogany table.

Ms. Logan delivered a blunt assessment: While the Fed had been buying government-backed bonds the week before to soothe the volatile Treasury market, market contacts said it hadn’t been enough. To fix things, the Fed might need to buy much more. And fast.

announced an enormous purchase program, promising to make $500 billion in government bond purchases and to buy $200 billion in mortgage-backed debt.

It wasn’t the central bank’s first effort to stop the unfolding disaster, nor would it be the last. But it was a clear signal that the 2020 meltdown echoed the 2008 crisis in seriousness and complexity. Where the housing crisis and ensuing crash took years to unfold, the coronavirus panic had struck in weeks.

As March wore on, each hour incubating a new calamity, policymakers were forced to cross boundaries, break precedents and make new uses of the U.S. government’s vast powers to save domestic markets, keep cash flowing abroad and prevent a full-blown financial crisis from compounding a public health tragedy.

The rescue worked, so it is easy to forget the peril America’s investors and businesses faced a year ago. But the systemwide weaknesses that were exposed last March remain, and are now under the microscope of Washington policymakers.

cut interest rates to about 1 percent — its first emergency move since the 2008 financial crisis. Some analysts chided the Fed for overreacting, and others asked an obvious question: What could the Fed realistically do in the face of a public health threat?

“We do recognize that a rate cut will not reduce the rate of infection, it won’t fix a broken supply chain,” Chair Jerome H. Powell said at a news conference, explaining that the Fed was doing what it could to keep credit cheap and available.

But the health disaster was quickly metastasizing into a market crisis.

Lockdowns in Italy deepened during the second week of March, and oil prices plummeted as a price war raged, sending tremors across stock, currency and commodity markets. Then, something weird started to happen: Instead of snapping up Treasury bonds, arguably the world’s safest investment, investors began trying to sell them.

The yield on 10-year Treasury debt — which usually drops when investors seek safe harbor — started to rise on March 10, suggesting investors didn’t want safe assets. They wanted cold, hard cash, and they were trying to sell anything and everything to get it.

officially declared the virus outbreak a pandemic, and the morning on which it was becoming clear that a sell-off had spiraled into a panic.

The Fed began to roll out measure after measure in a bid to soothe conditions, first offering huge temporary infusions of cash to banks, then accelerating plans to buy Treasury bonds as that market swung out of whack.

But by Friday, March 13, government bond markets were just one of many problems.

Investors had been pulling their cash from prime money market mutual funds, where they park it to earn a slightly higher return, for days. But those outflows began to accelerate, prompting the funds themselves to pull back sharply from short-term corporate debt markets as they raced to return money to investors. Banks that serve as market conduits were less willing than usual to buy and hold new securities, even just temporarily. That made it harder to sell everything, be it a company bond or Treasury debt.

The Fed’s announcement after its March 15 emergency meeting — that it would slash rates and buy bonds in the most critical markets — was an attempt to get things under control.

But Mr. Powell worried that the fix would fall short as short- and long-term debt of all kinds became hard to sell. He approached Andreas Lehnert, director of the Fed’s financial stability division, in the Washington boardroom after the meeting and asked him to prepare emergency lending programs, which the central bank had used in 2008 to serve as a support system to unraveling markets.

short-term corporate debt and another to keep funding flowing to key banks. Shortly before midnight on Wednesday, March 18, the Fed announced a program to rescue embattled money market funds by offering to effectively take hard-to-sell securities off their hands.

But by the end of that week, everything was a mess. Foreign central banks and corporations were offloading U.S. debt, partly to raise dollars companies needed to pay interest and other bills; hedge funds were nixing a highly leveraged trade that had broken down as the market went haywire, dumping Treasurys into the choked market. Corporate bond and commercial real estate debt markets looked dicey as companies faced credit rating downgrades and as hotels and malls saw business prospects tank.

The world’s most powerful central bank was throwing solutions at the markets as rapidly as it could, and it wasn’t enough.

hit newswires at 8 a.m., well before American markets opened. The Fed promised to buy an unlimited amount of Treasury debt and to purchase commercial mortgage-backed securities — efforts to save the most central markets.

serve as a lender of last resort to troubled banks. On March 23, it pledged to funnel help far beyond that financial core. The Fed said it would buy corporate debt and help to get loans to midsize businesses for the first time ever.

It finally worked. The dash for cash turned around starting that day.

The March 23 efforts took an approach that Mr. Lehnert referred to internally as “covering the waterfront.” Fed economists had discerned which capital markets were tied to huge numbers of jobs and made sure that every one of them had a Fed support program.

On April 9, officials put final pieces of the strategy into play. Backed by a huge pot of insurance money from a rescue package just passed by Congress — lawmakers had handed the Treasury up to $454 billion — they announced that they would expand already-announced efforts and set up another to help funnel credit to states and big cities.

The Fed’s 2008 rescue effort had been widely criticized as a bank bailout. The 2020 redux was to rescue everything.

The Fed, along with the Treasury, most likely saved the nation from a crippling financial crisis that would have made it harder for businesses to survive, rebound and rehire, intensifying the economic damage the coronavirus went on to inflict. Many of the programs have since ended or are scheduled to do so, and markets are functioning fine.

But there’s no guarantee that the calm will prove permanent.

“The financial system remains vulnerable” to a repeat of last March’s sweeping disaster as “the underlying structures and mechanisms that gave rise to the turmoil are still in place,” the Financial Stability Board, a global oversight body, wrote in a meltdown post-mortem.

Industry players are already mobilizing a lobbying effort, and they may find allies in resisting regulation, including among lawmakers.

“I would point out that money market funds have been remarkably stable and successful,” Senator Patrick J. Toomey, Republican of Pennsylvania, said during a Jan. 19 hearing.

Matt Phillips contributed reporting.

View Source