The Fed isn’t done buying corporate debt

The Federal Reserve is taking its unprecedented intervention in the corporate bond market to the next level.

On Monday, the central bank officially launched its Primary Market Corporate Credit Facility (PMCCF)—a new program that will see the Fed purchase up to $500 billion worth of newly issued corporate debt.

The move comes two weeks after the Fed ramped up another program—the Secondary Market Corporate Credit Facility (SMCCF)—designed to buy up to $250 billion of existing corporate bonds on the secondary market. While that facility initially was launched in May with the purchase of corporate debt via exchange-traded funds (ETFs), the Fed announced its intention to begin directly buying individual bonds on the secondary market on June 16.

Both credit facilities—which can buy up to $750 billion in corporate debt combined—are part of an expansive and extraordinary array of measures taken by the Fed to keep credit flowing for big borrowers battered by the coronavirus pandemic. Also in its toolkit are significant forays into purchasing Treasurys, mortgage-backed securities, consumer debt-backed securities, and municipal bonds, while also moving to ensure banks had the liquidity needed to continue lending to businesses and households. 

The Fed’s efforts to stimulate the corporate credit markets came after they showed signs of stress as economic conditions deteriorated in March. So the central bank stepped in, and through the facility it is purchasing bonds issued by U.S.-based companies that were rated investment-grade as of March 22—including so-called “fallen angels” that have seen their credit ratings notch down into high-yield territory as a result of the pandemic.

Over the weekend, the Fed revealed the nearly 800 companies whose corporate bonds it will directly buy through the facilities, including the likes of Apple, Verizon, AT&T, Walmart, ExxonMobil, and the U.S. units of carmakers Toyota and Volkswagen.

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