Powell put

13 April 2020 By Anna Szymanski Follow @Three_Guineas

The U.S. central bank said it will buy bonds of some firms that lose investment-grade ratings. It’s a good compromise to avoid a high-yield market crunch. But companies binged on debt partly because of loose monetary policy. The Fed now risks distorting the price of credit.

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The U.S. Federal Reserve said on April 9 that its Primary and Secondary Market Corporate Credit Facilities can now buy – through a special purpose vehicle – some non-investment grade U.S. corporate bonds if the issuer had an investment grade rating from a major ratings agency or from at least two major agencies if it’s rated by multiple firms as of March 22. These issuers must be rated at least BB-minus, or the equivalent Ba3, when the facilities purchase the debt.

The SMCCF will now be able to purchase exchange traded funds that are primarily exposed to U.S. high yield corporate debt, though the majority of its ETF purchases will be of those mostly exposed to investment grade bonds.

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