On March 23, 2020, the Federal Reserve and Treasury Department announced the Term Asset-Backed Securities Loan Facility (TALF). Similar to the 2009 TALF program, TALF 2.0 is designed to encourage private investments in asset backed securities (ABS) by providing federal government loans to investors through the New York Federal Reserve (“The Fed”). The TALF program of 2009 was one of the US Government’s responses to the Global Financial Crisis, and it was successful in stabilizing capital markets and generating returns for investors in the high teens or more, depending on when investments were initiated.
The TALF 2.0 program gives investors exposure to secured, primarily triple-A rated, securitized investments with three-year terms and utilizes leverage provided by the Fed. The main appeal of the program is that Investors can borrow at a very low rate and use the proceeds to purchase assets at a potentially higher yield, with far less downside risk than is normally associated with leverage.