The Fed is changing it up


The Fed is changing up its corporate bond buying program to buy the bonds directly, rather than solely via ETFs.

The Fed said it will buy based on a building a broad diversified portfolio based on a market index of US bonds.

Here's the release.

The tool is meant to "improve market functioning" and they're calling this plan an "update". All the PR words the Fed has been using lately show just how politicized the central bank has become. "Main street facility" for $300m loans? Please.

The PMCCF will provide companies access to credit by (i) purchasing qualifying bonds as the sole investor in a bond issuance, or (ii) purchasing portions of syndicated loans or bonds at issuance. The SMCCF may purchase in the secondary market (i) corporate bonds issued by investment-grade U.S. companies; (ii) corporate bonds issued by companies that were investment-grade rated as of March 22, 2020, and that remain rated at least BB-/Ba3 at the time of purchase.

They're even buying new issues.

The program will buy up to $750B in bonds with the Treasury providing $75B for potential losses.

The market loves this news with risk trades jumping to the best levels of the day and the US dollar falling.

What's missing in the Fed release is why they're doing this. For a bank that loves to talk about how transparent they are, what's the excuse?

"To support market liquidity and the availability of credit for large employers," is far too vague. As @pearkes highlighted, this was always the plan to buy individual bonds and not just ETFs, so this is really just following through on an old promise.