Fed issues details on bond purchase

WASHINGTON (AP) – The Federal Reserve on Sunday released a list of approximately 750 companies, including Apple, Walmart and ExxonMobil, whose corporate bonds it will buy in the coming months in an effort to keep borrowing costs low and smooth the flow of credit. .

The central bank also said that, so far, it has purchased nearly $ 429 million in corporate bonds from 86 of those companies, including AT&T, Walgreen’s, Microsoft, Pfizer and Marathon Petroleum.

The Fed announced in March that, for the first time in its history, it would buy corporate bonds, as the intensification of the viral outbreak caused investors in panic to abandon most types of securities in a rush to hold cash. That raised a range of interest rates and made it almost impossible for companies to borrow more by issuing new bonds.

However, once the Fed said it intended to buy up to $ 750 billion of corporate debt, investors started buying bonds again, and eventually large companies resumed issuing large amounts of new bonds. Recent economic research He found that simply by announcing the program, the Fed was able to increase confidence in corporate bonds and improve market efficiency.

Fed President Jerome Powell has said that by ensuring that large companies can get more loans, the Fed seeks to prevent those companies from having to lay off workers. But corporations are not required to support all of their workers.

In a hearing last week, Sen. Pat Toomey, R-Pennsylvania, asked Powell if the purchases were still necessary, as the corporate bond market has largely rebounded. Powell said the Fed had to keep its promises.

To avoid criticism that it could favor a specific industry, the Fed said two weeks ago It would try to imitate a broad market index approach and buy bonds from a wide range of companies. Consumer products companies such as Quaker Oats and the Brown-Forman distiller, which makes Jack Daniel’s and Woodford Reserve whiskeys, account for about a third of the index. This sector is followed by public services with 10% and energy companies with more than 9%. The index also includes insurance companies but not banks.

The Federal Reserve will only buy highly rated debt from financially sound companies, or those that were highly rated before the pandemic. The Federal Reserve is legally prohibited from lending to insolvent companies. You said you would report your purchases every 30 days.

The Fed said Sunday that it made its first bond purchase from 86 companies last week. Those companies include Nike, broadcaster Fox Corp., Paypal, Target, Campbell Soup and chipmaker Broadcom.

The central bank is also buying bond groups in exchange-traded funds, which operate similarly to mutual funds. The Fed currently holds $ 6.8 billion in ETF bonds.

The Treasury Department has provided $ 75 billion in taxpayer money to stop any loss on the bond purchase. So far, Federal Reserve purchases remain modest relative to the program’s announced $ 750 billion limit.

In comparison, since March, it has bought more than $ 2 trillion in Treasury securities and mortgage-backed securities in an effort to inject cash into the short-term loan markets.