Fed to Sell Corporate Bonds and ETFs Purchased During Covid-19 Crisis -- Update
June 02 2021 - 5:57PM
Dow Jones News
By Paul Kiernan
The Federal Reserve will soon begin selling off the corporate
bonds and exchange-traded funds it amassed last year through an
emergency-lending vehicle set up to contain the Covid-19 pandemic's
economic fallout.
The vehicle, known as the Secondary Market Corporate Credit
Facility, or SMCCF, held $5.21 billion of bonds from companies
including Whirlpool Corp., Walmart Inc. and Visa Inc. as of April
30. In addition, it held $8.56 billion of exchange-traded funds
that hold corporate debt, such as the Vanguard Short-Term Corporate
Bond ETF.
A Fed official said the sales should be completed by the end of
this year. Net proceeds will be remitted to the Treasury
Department.
The Fed's corporate-debt holdings are distinct from its $7.3
trillion balance sheet of Treasury securities and agency
mortgage-backed securities. The central bank under Chairman Jerome
Powell is continuing to purchase those types of assets to the tune
of at least $120 billion a month as part of its monetary-policy
goal of holding down borrowing costs until the economy recovers
further from the pandemic.
The SMCCF was set up in March 2020 as part of a broader suite of
programs established by the Fed and Treasury to shore up liquidity
in financial markets. Stock and bond markets at the time were
reeling from the fear and uncertainty regarding the coronavirus and
economic lockdowns to contain it.
The Fed's announcement of the SMCCF and a related vehicle, the
Primary Market Corporate Credit Facility, quickly restored investor
confidence in major corporations' ability to issue debt. As a
result, the latter vehicle never made a purchase, and the SMCCF's
holdings peaked at around $14.2 billion last year, a far cry from
the two programs' combined $750 billion of firepower.
"The SMCCF proved vital in restoring market functioning last
year, supporting the availability of credit for large employers,
and bolstering employment through the Covid-19 pandemic," the Fed
said in a statement Wednesday.
The corporate-credit programs stopped buying assets on Dec. 31
after then-Treasury Secretary Steven Mnuchin declined to extend
several of the Fed's emergency lending programs.
In Wednesday's statement, the Fed said it plans to sell the
bonds and ETF holdings in a gradual and orderly way that seeks to
minimize "the potential for any adverse impact on market
functioning."
The New York Fed, which manages the SMCCF, will provide
additional details soon and before sales begin, the statement
added.
Write to Paul Kiernan at paul.kiernan@wsj.com
(END) Dow Jones Newswires
June 02, 2021 17:45 ET (21:45 GMT)
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