The Fed will cancel the emergency purchase of US corporate bonds


The Fed said it will begin selling corporate bonds and fixed income funds it bought last year to stabilize the financial system, lifting unprecedented emergency measures that will revitalize the market and reduce the borrowing costs of companies in trouble due to the financial crisis. Pandemic.

The Bank of America said on Wednesday that it will gradually sell assets acquired through its so-called secondary market corporate credit facility (SMCCF). A Fed official stated that the goal is to complete this process by the end of the year.

This tool combines the funds of the U.S. Treasury Department with the central bank’s own resources to acquire corporate bonds and exchange-traded funds in the secondary is roll out In April last year, there were 12 other loans aimed at supporting debt markets that were under severe pressure due to the US economic shutdown.

According to data from the Federal Reserve, the total use of SMCCF and another tool designed to support major corporate debt markets is less than 14 billion U.S. dollars, which is less than 2% of the available funds of 750 billion U.S. dollars.

This Federal Reserve Merely through the promise of support, the limited use is touted as proof of its success in quickly resuming market operations. With the rise in corporate bond prices, companies affected by the epidemic will still be able to enter the capital market.

The central bank has also lowered interest rates to zero and promised to buy unlimited amounts of US government bonds.

The Federal Reserve said in a statement on Wednesday: “It has been proven that SMCCF played a vital role in resuming market operations last year, supporting large employers in obtaining credit, and promoting employment through the Covid-19 pandemic.”

“The sales of the SMCCF investment portfolio will be gradual and orderly, and will minimize the possibility of any adverse effects on market operations by considering the daily liquidity and trading conditions of exchange-traded funds and corporate bonds.”

Investors basically ignored the announcement, partly because the Fed’s actual presence in the market is quite limitedAccording to the decision of the US Treasury Department, since the end of December, the facility has banned new purchases.

Patrick Leary, a senior trader at Incapital, said: “It’s hard to think of a more effective tool that can support the flow of credit to companies during a pandemic.”

Fed officials also started debate When they may consider scaling back other emergency measures taken during the crisis, including the monthly purchase of $120 billion in government and mortgage debt.

Leary stated that the SMCCF’s statement paved the way for the discussion and the final cancellation of the policy.

“This is a small step and a good way to test the market’s response,” Leary said.

Additional reporting by Brooke Fox in New York

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