Due to the virus outbreak, the municipal securities market has recently been under considerable strain as investors have become reluctant to purchase municipal securities. As a result, interest rates on municipal securities have increased significantly. At the same time, states, cities, and counties are facing severe liquidity constraints resulting from the increase in state and local government expenditures related to the COVID-19 pandemic and the decrease and delay of certain tax revenue. By ensuring the smooth functioning of this market, particularly in times of strain, the Federal Reserve is providing credit that will support families, businesses, and jobs in communities, large and small, across the economy. The immediate purpose of the Municipal Liquidity Facility is to enhance the liquidity of the municipal securities market by increasing the availability of funding to eligible States, Cities and Counties through Tax Anticipation Notes (“TANs”), Tax and Revenue Anticipation Notes (“TRANs”), Bond Anticipation Notes (“BANs”), and other similar short-term notes from eligible issuers (collectively, “Notes”). The eligible issuer’s proceeds from its notes sales can in turn be used to support its political subdivisions and instrumentalities, among other uses. This facility will provide a form of bridge financing to eligible issuers, and by addressing the cash management needs of eligible issuers, the facility will also encourage investors to once again engage in the municipal securities market. Of course what I’ve just covered is not an exhaustive list. The Federal Reserve Board has also announced a number of other programs designed to supply credit directly to households, businesses, and municipalities.

This funding can be provided by the PMCCF either through purchases of eligible corporate bonds as the sole investor at issuance, or from purchases of portions of syndications at issuance. The secondary market corporate credit facility (SMCCF), also backed by the U.S. Treasury with funding from the Federal Reserve, will play an important complementary role to the PMCCF. Here again, there will be two mechanisms at work: the SMCCF may either purchase eligible corporate bonds with a remaining maturity of 5 years or less, or it can purchase U.S.-listed ETFs. For ETFs, the preponderance of holdings will be of ETFs whose primary investment objective is exposure to U.S. investment-grade corporate bonds, and the remainder will be in ETFs whose primary investment objective is exposure to U.S. high-yield corporate bonds. Taken together, the corporate credit facilities will have three main objectives when we go live in the coming weeks: first, to provide broad support for market functioning in secondary markets to allow for orderly and timely risk transfer in corporate credit; second, to support primary issuance for businesses at funding costs that better reflect normal liquidity conditions; and third, to reduce the incidence and severity of fire sales and/or indiscriminate liquidation. Municipal Liquidity Facility The last facility I’ll mention today is the municipal liquidity facility, which was designed to help 2/4  BIS central bankers' speeches  provide states, cities and counties with the funding needed to provide essential public services to their citizens.