Fed Quietly Bails Out Firms on the Corporate Bond Market

The news has not made national headlines but reflects the Fed’s current monetary policy. Bond purchases allow the Fed to move needed capital into companies in a less-than-direct way. By purchasing corporate paper, the Fed can create capital inflow, without direct loans or gifts. While the practice has been common in other central banks, the Fed did not purchase corporate paper before the pandemic. However, now that they’ve relented, purchases have taken off. In the last week of June, it added $1.33 billion in corporate bond holdings. This brought the overall total to $1.59 billion.

Fed Corporate ETF Balance Sheet Balloons to $8B

The central bank also owns nearly $8 billion in corporate bond ETF shares. Approximately half of those were issued by BlackRock, who waived fees for Fed-related purchases. These purchases include over $25 million in Verizon and AT&T, with Apple joining the ranks of the front-runners. Others, like Ford Motor Co., are closer to $10 million in bond issues but have been downgraded to junk during the crisis. The Fed has responded to the COVID crisis by trying to capitalize the market. As liquidity dried up, the demand for dollars exploded. By purchasing corporate bonds, it is effectively finding another creative way to pump liquidity into the market, albeit in a secondary fashion.