The Fed Will Now Start Buying Individual Corporate Bonds

The Federal Reserve is reaching further to buoy the markets. In an announcement on Monday, the Fed says it will start using its powers to buy individual corporate bonds.

The central bank, which has been buying exchange-traded funds, says the latest updates to the Secondary Market Corporate Credit Facility (SMCCF) will help support market liquidity and the availability of credit for large employers.

According to the announcement,

“[The] SMCCF will purchase corporate bonds to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds. This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity, and other criteria. This indexing approach will complement the facility’s current purchases of exchange-traded funds.”

The Dow Industrial Jones responded to the stimulus by adding another 200 points, wiping out losses from early Monday morning trading.

The latest intervention from the Fed aligns with its series of measures and emergency cash injections designed to patch gaping holes in the financial markets, with investors navigating a downtrend stacked with historic single-day losses triggered by the global pandemic.

While the Dow has largely rebounded since its mid-March low of 18,591, it has yet to reclaim 28,868 where it began in January, down roughly 11% on the year. The Dow closed today at 25,763.

Featured Image: Shutterstock/Paul Brady Photography

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