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
AeroPay and Jane Technologies announced Thursday a partnership to enable online payments via AeroPay across 36 U.S. state markets where cannabis is legal. More than 2,100 dispensaries and 300 companies…
In a speech on Wednesday, Jon Cunliffe of the Bank of England called for tough regulations on cryptocurrencies, drawing a parallel between the $1.2 trillion subprime mortgage market in 2008…
Tata Motors (NSE: TATAMOTORS), the automobile company of the Tatas, the Indian salt-to-airlines business conglomerate, will receive an investment of approximately $1 billion from TPG’s Rise Climate Fund and Abu…
Bitcoin, the leading cryptocurrency, is within handshaking distance of its April all-time high of $64,895 after spiking over the last 24 hours on rising market expectations of an imminent SEC…