Welcome to Thoughts on the Market. I'm Michael Zezes, head of Public Policy Research and Municipal Strategy for Morgan Stanley. Along with my colleagues bringing you a variety of perspectives, I'll be talking about the intersection between U.S. public policy and financial markets.

It's Wednesday, April 15th at 11 a.m. Eastern.

The saying Don't Fight the Fed took on a whole new meaning for bond investors last Thursday when the Federal Reserve

intervened in markets in a big way.

Using Seed Money from the U.S. Treasury, they boosted allocations to and eased eligibility

requirements for some key facilities aimed at companies gaining greater access to credit.

They then created two new facilities. The Main Street Lending Facility aimed at making loans available to small and mid-sized companies, and the municipal liquidity

facility aimed at helping municipal issuers smooth over short-term cash flow pressures.

For investors in corporate and municipal bond markets, this is a key positive.

For corporates, our colleagues in credit strategy were already positive on investment grade bonds.

But now they count high-yield corporate bonds among their positive recommendations.

Why? The Fed now has substantial capacity to support liquidity and credit quality in those markets.

The addition of ETS and some below investment grade bonds to the buying programs are key supports.

For municipal bonds, the Fed's actions provide two key supports to the market.

First, by helping the corporate credit market, Muni's benefit indirectly.

With mutual funds continuing to see outflows,

the marginal buyer of Munis is not interested in their tax benefits.

Rather, they're comparing them to taxable debt like corporates.

So if corporates get richer,

Munis may become more attractive to buyers.

Second, the new municipal liquidity facility or MLF limit some of the acute short-term

credit risk that had arisen in Munis.

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