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The Federal Reserve said it would start selling the corporate bonds and fixed-income funds it bought to stabilize the financial system last year, undoing unprecedented emergency measures that electrified markets and reduced costs. corporate debt pandemic.
The U.S. central bank said Wednesday that assets acquired through the so-called corporate secondary market credit mechanism (SMCCF) will be gradually sold. The goal is to finish the process by the end of the year, according to a Fed official.
The facility, which combined U.S. Treasury capital with the central bank’s own resources, acquired corporate bonds and exchanged traded funds in the secondary market. It was like that deployed in April last year, along with 12 other facilities designed to support various debt markets that had been under strong pressure to shut down the U.S. economy.
According to Fed data, the use of the SMCCF and another facility to support the core corporate debt market amounted to less than $ 14 billion, less than 2% of the $ 750 billion available .
He Powered made known the limited use as a testament to its success in restoring the functioning of the market quickly, simply by promising its support. Corporate bond prices rose and companies blocked by the pandemic continued to have access to capital markets.
The central bank had also reduced interest rates to zero and had pledged to buy an unlimited amount of U.S. public debt.
“The SMCCF proved vital in restoring the functioning of the market last year, supporting the availability of credit for large entrepreneurs and strengthening employment through the Covid-19 pandemic,” the Fed said in a communicated Wednesday.
“SMCCF portfolio sales will be gradual and orderly and will aim to minimize the potential for any adverse impact on market functioning, taking into account daily liquidity and trading conditions of listed funds and corporate bonds. “.
Investors set aside the announcement, in part because the Fed’s actual presence in the market was quite low limited. The facility has been closed to new purchases since late December, following a U.S. Treasury decision.
“It’s hard to think of a more effective tool to support the flow of credit to businesses during the pandemic,” said Patrick Leary, senior operator of Incapital.
Fed officials have also begun to do so debate when they can consider reducing other emergency measures established during the crisis, including their monthly purchases of public debt and $ 120 billion in mortgage debt.
Leary said the SMCCF announcement paved the way for this discussion and the eventual elimination of policy accommodation.
“This is a small step and a good way to test the waters based on the market reaction,” Leary said.
Additional reports from Brooke Fox in New York
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