George Calhoun contributes another article to Forbes’ series of posts dealing with the impact and implications of the COVID-19 pandemic for the Financial world.

Discussing the implications of the current COVID-19 crisis as part of a series on the subject, George Calhoun writes about how interpreting price signals is difficult in the financial market. Ford, the American car manufacturer who showed financial struggle back in November, still had bonds trading at 120 cents on the dollar in January. Due to the COVID-19 outbreak, its bonds decreased to 68 cents on the dollar as of April 8th. Within the next few days, however, they reached almost 90 cents on the dollar, up 32%. This was because the Federal Reserve announced an expansion of its program of buying corporate bonds in the open market. This is significant, since they will buy corporate bonds that don’t meet certain standards of risk and credit-worthiness, such as Ford’s. This move will both expose the Federal Reserve’s balance sheet for the first time to credit risk, but will also inject the Federal Reserve into the economy in a new role. They will have to learn how to make decisions about “new sorts of questions emanating from the private sector”.

All of this would have never happened if it weren’t for the COVID-19 pandemic, which may be changing certain features of the financial landscape for good.

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George Calhoun is the Director of the Hanlon Financial Systems Center as well as the Founder & Director of the Quantitative Finance Program at the Stevens Institute of Technology. He has spent 25 years in the high-tech segment of the wireless communications industry. He is author of several books on wireless technology, and his new book "Price & Value: A Guide to Equity Market Valuation Metrics" was published this year (2020) by Springer/Apress.