Jerome Powell, chairman of the US Federal Reserve, speaks during a Senate Banking Committee hearing in Washington, DC, USA, on Wednesday, February 12, 2020.
Andrew Harrer | Bloomberg | fake pictures
The United States Federal Reserve bought $ 428 million in bonds from individual companies through mid-June, making investments in well-known names such as Walmart and AT&T, as well as major oil companies, tobacco giant Philip Morris and a service subsidiary. by billionaire Warren Buffett’s Berkshire Hathaway holding company. business.
The transactions disclosed Sunday are the first bond purchases by individual companies made by the Federal Reserve under new programs established to fuel the economy through the coronavirus pandemic. The Fed also added $ 5.3 billion in 16 exchange-traded funds of corporate bonds, including a recently added sixth high-yield fund.
The initial round of purchases included some 86 issuers, about half of them contractually liquidated as of June 18 and some still ongoing, all purchased on the secondary market.
That’s a small portion of the more than 790 issuers whose bonds the Fed has said in a separate statement were eligible for purchase.
But it was still his first foray into buying corporate bonds that spread widely throughout the economy, affecting companies like Gilead Sciences that are involved in developing treatments for Covid-19 disease caused by the new coronavirus, as well as to major automakers. That included Ford Motor, whose credit was downgraded after the Fed announced its intention to buy corporate debt.
Both the Bank of Japan and the European Central Bank have programs to buy individual corporate bonds, but the Fed only added that to its arsenal in light of the depression-level risks posed by the pandemic. The goal is to ensure that companies can continue to finance themselves and not be forced to leave the business due to problems raising cash during a pandemic. The program is backed by investment capital from the United States Treasury to absorb any losses in the event of corporate default.
The largest purchases were of bonds issued by AT&T and UnitedHealth, and the Fed purchased about $ 16.4 million in bonds from each.
Issuers in the energy industry accounted for approximately 8.45% of the bonds purchased, approximately one percentage point less than their representation in a broad market index that the Fed says their purchases are intended to track over time.
Lawmakers will review Fed bond purchases and other emergency programs in a hearing Tuesday before the House of Representatives Financial Services committee with Fed Chairman Jerome Powell. Questions may focus on the individual bonds purchased, but also on the fact that support for the bond markets used by major companies is now operational and receiving billions of support from the Fed, while the Loan Program The Fed’s main street for smaller businesses has yet to get a loan.
In general, central bank programs have had modest use. The central bank’s balance sheet has declined over the past two weeks, falling to $ 7.08 trillion more recently as foreign governments made less use of the Fed’s dollar exchange lines.
.
