Liquid Alternatives: Fed to Launch Corporate Bond ETF Purchases Today
The New York Fed announced the move Monday.
“Fallen angel” corporate bonds that have taken a rating hit may be supported by the corporate bond ETF purchase program envisaged in the Secondary Market Corporate Credit Facility (SMCCF). The facility will kick in today. ETFs holding these fallen angels, whose ratings fell from investment grade to speculative or junk grade due to COVID, maybe the earlier targets in the program. (CNBC) The Fed could buy up to $750 billion under the SMCCF, and the Primary Market Corporate Credit Facility (PMCCF).
The New York Fed has been tasked with the purchases. It has appointed asset manager Blackrock (NYSE: BLK) to execute the plan. The Treasury will provide $75 billion in equity which will be leveraged 10X to the targeted $750 billion.
However, the program will run with conditionalities in place:
“The preponderance of ETF holdings will be of ETFs whose primary investment objective is exposure to U.S. investment-grade corporate bonds, and the remainder will be in ETFs whose primary investment objective is exposure to U.S. high-yield corporate bonds.
Moreover, the SMCCF will consider several additional factors in determining which ETFs will be eligible for purchase. Those considerations include: the composition of investment-grade and non-investment-grade rated debt, the management style, the amount of debt held in depository institutions, the average tenor of the underlying debt, the total assets under management, the average daily trading volume, and leverage if any.”
Bond ETFs already gung ho
The iShares iBoxx Investment Grade Corporate Bond ETF (NYSEARCA: LQD) is up 18% since March 20, the iShares iBoxx High Yield Corporate Bond ETF (NYSEARCA: HYG) has risen 14% and the SPDR Bloomberg Barclays High Yield Bond ETF (NYSEARCA: JNK) has surged 14% as well.
Moreover, LQD is trading today at $126.60, up 0.84%.
HYG is up 0.46% to $79.75 and JNK is higher by 0.40% at $98.39.
Image credit: Flickr
Latest Alternative Investment News
The new Crypto Industry Innovators ETF (NYSE: BITQ) from Bitwise Asset Management offers investors exposure to shares of “public companies that are participants in the growing bitcoin and cryptocurrency sector.”…
PayPal (NASDAQ: PYPL) which has built its hybrid cloud strategy over the years with Google Cloud as a partner, is now moving more and more of its infrastructure workloads to…
The pan-European savings marketplace Raisin launched its Raisin Invest ETF platform in Germany in 2018. Raisin Invest has since become one of the market’s biggest robo advisers and now boasts…
Jeremiah Gordon is General Counsel at CapitalG, Alphabet’s (NASDAQ: GOOGL) independent growth fund which has $3 billion under management. He also leads an Alphabet-wide team focused on investing in Black-led…