© Bloomberg. Marriner S. Eccles Federal Reserve Building stands in Washington, D.C. Photographer: Andrew Harrer / Bloomberg
(Bloomberg) – The Federal Reserve said a facility designed to buy eligible corporate debt from investors will launch on May 12, bringing a key part of the U.S. the central bank’s program for lending emergency coronavirus online after weeks of anticipation.
The so-called Secondary Market Corporate Credit Facility begins the purchase of eligible stock exchange-traded funds that are invested in corporate debt Tuesday, the New York Fed said Monday on its website. It was first announced in March and has played an important role in keeping financial markets relatively calm since then. Another facility designed to buy debt directly from issuers – the primary market Corporate Credit Facility – will launch “in the near future,” according to the announcement.
Congress allocated $ 454 billion In equity to backstop Fed loans as part of the more than $ 2 trillion economic emergency package passed in March, the secondary market facility is the first Fed program to use stimulus law funding to get started. Fed officials first announced the creation of corporate credit facilities on March 23.
The New York Fed said the U.S. The Treasury Department had made $ 37.5 billion of the $ 75 billion equity investment it will make in the special purpose vehicle created by the central bank to complete the primary and secondary market credit facilities. Treasury Secretary Steven Mnuchin said earlier on Monday that he had sent the Fed money to the program.
“Overweight of ETF holdings” will consist of those mainly exposed to the U.S. investment grade corporate bonds, with the remainder the primary objective of which is exposure to the U.S. high-yielding corporate bonds, the New York Fed announcement says.
Other factors that are considered for eligible ETFs are the composition of debt and non-investment grade, debt management and the size of debt in depository institutions.
Blackrock (NYSE 🙂 Agreement
The Reserve Bank also posted on its website the investment management agreement with BlackRock, the asset management giant it has retained to manage the program.
Corporate credit facilities are among the nine emergency lending programs the Fed is working to help curb the blow to the U.S. pandemic economy and keep the flow of credit. They mark a dramatic escalation of central bank intervention in the financial markets by entering corporate debt – potentially including the purchase of some under-investment grade securities – for the first time since the 1950s.
More information on corporate bond purchases from secondary and primary facilities is “forthcoming,” the New York Fed announcement reads.
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