Monday, the Fed said that it will begin buying individual corporate bonds under its Secondary Market Corporate Credit Facility, an emergency lending program that to date has purchased only ETFs.
Saying it will follow a diversified market index of US corporate bonds created expressly for the facility. The Fed built the index internally, itd detail are not public.
“This index is made up of all the bonds in the secondary market that have been issued by US companies that satisfy the facility’s minimum rating, maximum maturity and other criteria,” the Fed said in a statement. “This indexing approach will complement the facility’s current purchases of exchange-traded funds.”
US stocks climbed off of the bottom to finish on the highs of the day after the announcement. That move was about 1000 pts.
The S&P 500 gained 0.8% Monday to overcome an early 2.5% decliner, as investors welcomed another aggressive policy update from the Fed.
The DJIA swung nearly 1000 pts from its bottom to close 0.6% higher, the NAS Comp (+1.4%) and Russell 2000 (+2.3%) outperformed.
BlackRock’s iShares iBoxx $ Investment Grade Corporate Bond exchange-traded fund, the largest credit ETF, rose 1.9% to hit session highs, while the iShares iBoxx High Yield Corporate Bond ETF climbed as much as 1.6%.
This does not surprise me at all, as President Trump’s promises are kept, and Fed must keep its credibility.
The New York Fed said that purchases of bonds from eligible sellers will begin Tuesday.
The Fed said it could slow or even pause daily purchases if market functioning showed sustained improvement, though buying could pick back up if conditions worsened again.
The SMCCF is 1 of 9 emergency lending programs announced by the Fed since mid-March aimed at limiting the damage to the US economy by the C-19 coronavirus chaos. With a capacity of $250-B it has so far invested about $5.5-B in ETFs that purchase corporate bonds.
An index assures the Fed complies with the spirit of the law under Section 13.3 of the Federal Reserve Act which says emergency lending facilities must be broad based, and provides a mechanism for the central bank to avoid industry concentration.
Have a healthy day, Keep the Faith!