The New York Federal Reserve has pumped another $75 billion into the market to keep rates low for the third day straight.
Short-term rates had risen up to almost 10% earlier this week, harboring the potential to completely quell demand in the bond market and threaten the lending system.
The target range is 1.75% to 2%.
On Thursday, after the Fed injected the markets with billions, the yield on the benchmark 10-year Treasury note did actually stabilize at 1.777%, the same as Wednesday. This has been the first time this week the yield has not declined.
The reason rates shot up so much so fast was because the supply of cash was far lower than demand for the same. This caused collateral to skyrocket.
"For the foreseeable future, we're going to be looking at it, if needed, doing the sorts of things we did the last two days, these temporary open market operations That'll be the tool we use," said Federal Reserve Chairman Jerome Powell after the Fed announced a quarter point rate cut Wednesday afternoon. "While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy."
Investors are concerned that these erratic moves in the benchmark rates are damaging the Fed's credibility. This credibility was already tarnished after some questioned whether the Fed's more hawkish guidance was a political retaliation to Trump's scrutiny, and whether the institution acted too late last December.
Drew Matus, chief market strategist at MetLife Investment Management, said: "I can't pinpoint what happened. And I'm not sure anyone can. I'm not sure the Fed knows because he said he's going to learn over the next six weeks. I'm taking away from that that the funding markets are going to be more volatile over the next six weeks." Matus said. "They don't have a solution because in part, they're still learning. The market is very different than it was before the crisis. When we began the restart of normalizing policy, this is one of the things that was going to be a learning experience."