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The Fed issues details of bond purchases



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

The central bank also said it has so far purchased nearly $ 429 million in corporate bonds from 86 of those companies, including AT&T, Walgreen, Microsoft, Pfizer and Marathon Petroleum.

The Fed announced in March that it would buy corporate bonds for the first time in its history as the escalation of the viral outbreak caused panicked investors to unload most of the securities in a run for liquidity. This pushed up 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 in corporate debt, investors started buying bonds again and eventually large corporations resumed issuing large quantities of new bonds. Recent economic research he found that by simply announcing the program, the Fed was able to strengthen confidence in corporate bonds and improve market efficiency.

Fed President Jerome Powell said that by ensuring that big companies can borrow more, the Fed is trying to stop those companies from laying off workers. But companies are not required to retain all their workers.

At a hearing last week, Senator Pat Toomey, R-Pa., Questioned Powell on the question of whether purchases were still needed, as the corporate bond market has largely recovered. Powell said the Fed had to deliver on its promises.

To avoid criticism that could favor a specific sector, the Fed said two weeks ago which 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 produces Jack Daniel̵

7;s and Woodford Reserve whiskeys, make up about a third of the index. This sector is followed by public utility services at 10% and energy companies at over 9%. The index also includes insurance companies but no banks.

The Fed will only purchase highly rated debt from financially sound companies, or from highly rated companies before the pandemic. The Fed is legally prohibited from lending to insolvent companies. He said he would report on his purchases every 30 days.

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

The central bank is also purchasing pools of bonds in exchange-traded funds, which operate similarly to mutual funds. The Fed currently owns $ 6.8 billion in bond ETFs.

The Treasury Department has provided $ 75 billion in taxpayer money to sustain any losses resulting from the purchase of bonds. So far, Fed purchases remain modest compared to the $ 750 billion limit announced by the program.

In comparison, it has purchased over $ 2 trillion in Treasury and mortgage-backed securities since March in an attempt to pump liquidity into the short-term loan markets.


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