Federal Reserve Discloses Corporate Bond Purchases

06.29.20 - The Federal Reserve disclosed the names of 749 companies the central bank began purchasing investment-grade corporate bonds from this month, among them are primarily automakers and technology firms. Among the names were; Apple, AT&T, Verizon, Volkswagen, Toyota, and Daimler (Mercedes). Those listed names accounted for approximately 10% of debt purchased by the central bank for the broader list.

The list includes debt from across 12 different sectors. Two of those—consumer cyclical and consumer noncyclical industries are to account for more than one-third of corporate bonds the central bank planned to purchase, according to the most recent disclosures.
The Fed announced in March that it would buy corporate debt to prevent the market from freezing up and squeezing companies of needed cash as the economy came to a halt from the coronavirus shock to the globe.

The central bank’s corporate-debt program is structured in different phases and tranches. The central bank plans to purchase up to $250 billion of debt already issued by companies. Followed by $500 billion in newly issued bonds purchases.
As part of its purchases of outstanding debt, the Fed in May started buying exchange-traded funds that hold investment-grade and junk bonds. In another phase of those purchases, the Fed this month started buying actual corporate bonds, and not just ETFs. The latest central-bank disclosures for the first time included the actual bonds it started buying this month.

It is an unsavory thought to know that the central bank of the United States is loading up on debt from Mercedes automaker to “support the market”. However, in the broader picture, it boils down to the fact that a large number of Americans whether they have a 401K or a union pension plan, many Americans have their retirement nest eggs tied up in the market and therefore it is in their interest that markets stabilize, bonds don’t collapse, and banks don’t fail.

Source: Bloomberg