US Fed’s decision to buy corporate bonds is special booster for markets, Anil Singhvi says

The Federal Reserve's announcement to buy corporate bonds of the US companies has acted as an “extra booster” for the US markets, Zee Business Managing Editor Anil Singhvi opines. Till now, the central bank was buying assets in the ETF class, every month, he added.

The global markets have been seeing the impact of ETF buying, he said. Currently, the Federal Reserve buys ETFs as a measure for emergency lending.

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The decision is historical as the bank will now buy investment grade corporate bonds of the companies which have not been able to be sold.

Dow Jones has recovered by 900 points from its previous low and Nasdaq is at a life time high and this is due to the presence of enough liquidity in the system. The decision was unexpected and it has lifted the mood of the US markets today, he said.

This is a clear indication that more liquidity will be generated in the system. This will help the economy and prevent it from collapsing. The decision to put money into the system at zero interest rates is on the back of hopes that the economy will improve sooner or later.

The companies in need of urgent money will benefit from the move, he said.

There is a liquidity driven rally in the markets despite the US economy not doing too well. He said that the liquidity in the systems will get enhanced at a much lower price, which augurs well for the markets and the impact of this is likely to continue for some more time. The markets currently need money, which they are getting.

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But the current move may give a temporary relief only, Singhvi said and added that the economy needs to get better with better job numbers. The liquidity driven rally may not last long and the markets may become jittery, going forward, Singhvi cautioned.