Washington (Reuters)-By mid-June, the Fed had purchased $428 million in personal corporate bonds and invested in well-known companies such as Wal-Mart and AT&T, as well as large oil companies, tobacco giant Philip Morris International, and a utility subsidiary Billionaire Warren Buffett’s Berkshire Hathaway Holding Company.
FILE PHOTO: The Federal Reserve Board on Constitution Avenue was photographed on March 19, 2019 in Washington, USA. REUTERS/Leah Millis/File Photo
The deal disclosed on Sunday was the first time the Fed bought corporate bonds under a new plan aimed at protecting the economy through a coronavirus pandemic. The Fed also added 16 types of corporate bond exchange-traded funds of $5.3 billion, including the newly added sixth high-yield fund.
The first round of purchases included about 86 issuers, about half of which were settled by contract as of June 18, some were still in progress, and all were purchased on the secondary market.
This is a small part of more than 790 issuers.
But this is still the first attempt to buy corporate bonds, which have spread across the entire economy and touched companies like Gilead Sciences, which are all involved in developing treatments for COVID-19 disease caused by new coronaviruses , As well as major car manufacturers. This includes Ford Motor Company. After the Federal Reserve announced its intention to purchase corporate debt, Ford’s credit rating was reduced to garbage.
Both the Bank of Japan and the European Central Bank have plans to purchase personal corporate bonds, but in view of the risk of the Great Depression brought about by the pandemic, the Fed just added it to its arsenal. The purpose is to ensure that the company can continue to raise funds for itself and will not be forced to close down due to the problem of raising cash during the pandemic. The plan is supported by investment funds from the US Treasury to make up for any losses incurred when the company defaults.
The largest purchases were bonds issued by AT&T and United Health Group, from which the Federal Reserve purchased approximately $16.4 million in bonds.
Issuers in the energy industry accounted for about 8.45% of the bonds purchased, a percentage point lower than their representation in the broad market index that the Fed indicated that its purchase intentions tracked over time.
Members of Congress will review the Fed’s bond purchases and other emergency plans at the House of Representatives’ Financial Services Committee (FCA) hearing, along with House Chairman Jerome Powell, at a hearing on Tuesday. The problem may be focused on the purchase of personal bonds, or it may be that the support for the bond market used by major companies has now begun to operate and has received billions of dollars in Fed support, while the Fed’s “Street Loan Program” for small companies has not yet do it. loan.
So far, the central bank’s plan has generally not been used much. The central bank’s overall balance sheet has declined in the past two weeks. As foreign governments have reduced their use of the Fed’s dollar swaps, it has recently dropped to $7.08 trillion.
Reporting by Howard Schneider; Editing by Alistair Bell