Fed’s corporate bond facility bought 15 ETFs in first days of operations

Fed’s corporate bond facility bought 15 ETFs in first days of operations

(Reuters) – The Federal Reserve’s new facility for corporate bond purchases bought about $1.3 billion of shares in 15 exchange-traded funds in its first week of operation through 158 trades, data released Friday showed.

The Secondary Market Corporate Credit Facility made the purchases from 10 securities firms between its launch on May 12 and May 18, the data showed in the Fed’s first detailed disclosure of the SMCCF’s transactions.

The facility is one of nearly a dozen emergency programs the Fed has rolled out since March to respond to the economic crisis caused by the novel coronavirus pandemic. The Fed slashed interest rates to near zero in March and has launched a range of asset-purchase programs to bolster the flow of credit to U.S. companies and households.

Until the health crisis, the Fed had focused its asset purchases on U.S. Treasuries and mortgage-backed securities from government-sponsored entities such as Fannie Mae and Freddie Mac (OTC:). The SMCCF’s purchases of bond ETFs represent entirely new territory for the Fed.

Its largest holding as of May 19 at $326.3 million was the iShares iBoxx US Dollar Investment Grade Corporate Bond ETF (P:), the third largest U.S. taxable bond ETF, according to Lipper data. The fund’s largest holdings are bonds from such banks as Bank of America Corp (N:), JPMorgan Chase & Co (N:), Wells Fargo & Co (N:) and Goldman Sachs Group Inc (N:) as well as telecom operators AT&T Inc (N:) and Verizon Communications Inc (N:).

The facility also bought shares in six of the seven largest ETFs devoted to high-yield – or junk – bonds, accounting for $223.4 million, of 17% of its overall portfolio.

The largest junk ETF holding was the iShares iBoxx High Yield Corporate Bond ETF (P:) at just over $100 million. The investment gives it exposure to the bonds of such companies as wireless carrier Sprint Corp (N:) and hospital chain operator Tenet Healthcare Corp (N:).

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