The Federal Reserve released a list of about 750 companies on Sunday, including Apple, Wal-Mart and ExxonMobil, which will purchase their corporate bonds in the coming months to keep borrowing costs low and ease credit flows.
The central bank also stated that it has so far purchased nearly 429 million corporate bonds from 86 companies, including AT&T, Walgreens, Microsoft, Pfizer and Marathon Petroleum.
The Fed announced in March This will be the first time that corporate bonds have been purchased, as the growing virus outbreak has caused panic investors to sell most types of securities in an eager to hold cash. This has pushed up a series of interest rates, making it almost impossible for companies to borrow by issuing new bonds.
However, once the Fed indicated that it intended to purchase up to 750 billion US dollars of corporate bonds, investors began to buy bonds again, and eventually large companies resumed issuing large amounts of new bonds. Recent economic research It was found that by just announcing the plan, the Fed can increase confidence in corporate bonds and improve market efficiency.
Fed Chairman Jerome Powell said that by ensuring that large companies can borrow more money, the Fed is seeking to save these companies from layoffs. But the company does not need to retain all workers.
At the hearing last week, R-Pa. Senator Pat Toomey asked Powell if he still needed to make a purchase because the corporate bond market had basically recovered. Powell said that the Fed must keep its promise.
The Fed said two weeks ago that in order to avoid criticism it might benefit a particular industry, It will try to imitate a broad market index method and buy bonds from many companies. Consumer goods companies (such as Quaker Oats and distiller Brown-Forman, making Jack Daniel̵
The Fed will only buy highly rated debt from companies with good financial status or companies that received high ratings before the pandemic broke out. The Federal Reserve legally prohibits loans to insolvent companies. It said it would report a purchase every 30 days.
The Fed said on Sunday that it bought bonds from 86 companies for the first time last week. These companies include Nike, broadcaster Fox Corp., Paypal, Target, Campbell Soup and chip maker Broadcom.
The central bank also purchased the bond pool of exchange-traded funds, which operates in a similar way to mutual funds. The Fed currently owns a $6.8 billion bond ETF.
The Ministry of Finance has provided taxpayers with $75 billion in funding to support any loss in bond purchases. So far, relative to the $750 billion cap announced by the plan, the size of the Fed’s purchases is still small.
In contrast, since March, it has purchased more than $2 trillion in US Treasury bonds and mortgage-backed securities in an effort to inject cash into the short-term loan market.