Selling Corporate Bonds Purchased for COVID-19 Response
NYT "Trying to Signal It's Not Tapering"
[Asia Economy New York=Correspondent Baek Jong-min] The U.S. central bank, the Federal Reserve (Fed), announced that it will sell corporate bonds and exchange-traded funds (ETFs) purchased during the COVID-19 crisis. Some analysts interpret this as a de facto start of tightening ahead of the tapering of asset purchases.
On the 2nd (local time), after the New York stock market closed, the Fed announced through a notice that it will sell all corporate bonds and ETFs purchased last year through the Secondary Market Corporate Credit Facility (SMCCF) by the end of this year.
The Fed has stopped purchasing bonds through the SMCCF since the end of last year and is now moving to sell its holdings.
The Wall Street Journal reported that the Fed holds $5.21 billion in corporate bonds.
To support the real economy, the Fed decided in March last year to purchase corporate bonds in addition to monthly purchases of $120 billion in Treasury securities and mortgage-backed securities. The Treasury Department supported the funds for bond purchases under the SMCCF. Although the corporate bond purchases were not part of the Fed’s monetary policy response, they were seen as a signal that the Fed would not stand by and watch the market collapse.
The Fed explained that it will gradually sell bonds considering liquidity to minimize negative impacts on the market. Detailed sales plans will be announced separately by the Federal Reserve Bank of New York.
The New York Times noted that although the corporate bond market has stabilized recently, the Fed cautiously announced the sales, suggesting that the corporate bond sales are not a sign of tapering.
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