The critical faultline in the selloff has been the sudden strength of the greenback, as banks and investors liquidate assets and scramble for cash.
The Fed’s pledge last week to buy investment-grade credit and certain ETFs helped halt the slide in mutual fund net-asset values and sparked a rally in higher-rated debt.
The prevailing feature of the recent turbulence is that nothing has really worked as it was supposed to work.
The Fed’s efforts have restored calm in some areas, but risky credit remains vulnerable.
Beginning with an emergency interest-rate cut announced March 3, the Fed has run through its 2008-09 crisis playbook and leapt into uncharted territory.
Last week, fund companies began liquidating about 75 so-called tender-option bond trusts holding $1.2 billion worth of state and local government debt
ETFs that stand to benefit from Fed buying are now rallying.
The inevitable downgrades from triple-B to double-B will put money managers to the test.
