Fed begins buying corporate bonds

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The Federal Reserve Board has announced the Secondary Market Corporate Credit Facility (SMCCF), will begin buying a corporate bonds to support market liquidity and the availability of credit for large employers.

The update to the SMCCF is intended to add liquidity to a broad and diversified set of corporate bonds. The SMCCF will purchase corporate bonds to create a corporate bond portfolio that is based on a broad, diversified market index of US corporate bonds.

This index is made up of all the bonds in the secondary market that have been issued by US companies that is a business created or organised in the United States, under the laws of the US with significant operations in it and a majority of its employees being US-based. The issuer must have rated at least BBB-/Baa3 as of 22 March 2020, by a major nationally recognised statistical rating organization (NRSRO). If rated by multiple major NRSROs, the issuer must be rated at least BBB-/Baa3 by two or more NRSROs as of 22 March 2020.

If an issuer is rated at least BBB-/Baa3 as of 22 March, 2020, but was subsequently downgraded, it must be rated at least BB-/Ba3 as of the date on which the Facility makes a purchase. Bonds must have a remaining maturity of five years or less.

The indexing approach will complement the facility’s current purchases of exchange-traded funds. The SMCCF began purchasing bond exchange-traded funds (ETFs) on 12 May 2020.

The Primary Market and Secondary Market Corporate Credit Facilities were established with the approval of the Treasury Secretary and with US$75 billion in equity provided by the Treasury Department from the CARES Act.

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