US Fed to Begin Corporate Bond Purchases... ETF Buying Starts from the 12th

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The U.S. Federal Reserve (Fed) announced that it will begin purchasing corporate bonds in earnest starting on the 12th (local time). The purchase of corporate bond exchange-traded funds (ETFs) is a policy announced by the Fed last March to prevent economic damage caused by the novel coronavirus disease (COVID-19) and to inject liquidity into the market.

According to Bloomberg News, the Federal Reserve Bank of New York announced on its website on the 11th that purchases will be made through the Fed's 'Secondary Market Corporate Credit Facility (SMCCF).' Although the Fed had previously announced on the 4th that it would begin purchasing corporate bond ETFs through the SMCCF, it had not disclosed a specific date.

The New York Fed stated that most of the ETFs to be purchased consist of U.S. investment-grade corporate bonds, but some will be ETFs primarily exposed to U.S. high-yield corporate bonds. The Fed had said last month that it would also add junk bond-level ETFs to the purchase targets.

The New York Fed also said it would soon announce plans related to the 'Primary Market Corporate Credit Facility (PMCCF).' The PMCCF and SMCCF are special purpose vehicles (SPVs) established by the Fed to support the corporate bond market in response to the COVID-19 crisis. The Fed stated that the U.S. Treasury will inject $37.5 billion of the $75 billion bond investment fund into the SPVs.

Meanwhile, on the same day, the New York Fed disclosed the corporate bond purchase agency contract with asset management firm BlackRock. According to Bloomberg, the contract stipulates that corporate bond purchases, including ETFs, will be conducted in three stages: stabilization, monitoring, and support reduction, and that purchases should be made with the purpose of reducing liquidity deterioration as of March.

This content was produced with the assistance of AI translation services.