Extending its efforts to artificially inflate the American economic recovery, yesterday, the U.S. Federal Reserve announced it will buy individual corporate bonds on the secondary market.
The Fed added this operation to its Secondary Market Corporate Credit Facility, which is empowered to buy up to $750 billion in bonds.
The program will buy bonds with maturities of five years or less from corporations with credit ratings on 22 March, when the program was authorized, no lower than BBB- or Baa3, depending on the rating agency.
By buying debt of individual corporations, the Fed will “create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds,” the Fed said in a news release.
When the Fed said in March it might buy corporate bonds, the commercial debt market was seizing up: many corporate bonds were commanding interest rates almost five percentage points above treasury securities.
The greater the spread between treasury and commercial bonds’ interest rates, the greater the risk investors perceive.
At the end of May, the spread for the highest-rated bonds was about 2.5 points, near record lows since the end of World War II. The spread on riskier bonds is close to 3, about where it was before the pandemic struck.
The Fed has not yet opened its Primary Market Corporate Credit Facility, in which the Fed will be the sole bond buyer and deal directly with corporations. The program also will buy syndicated loans.
Among other of the Fed’s $2.3 trillion in efforts to resuscitate the economy:
- the $600-billion Main Street Lending Program, targeting companies with fewer than 10,000 employees and under $2.5 billion in revenues with loans ranging from $1 million to $25 million;
- a $500-billion loan pool directing money to state and local governments;
- financing for lenders handing out Paycheck Protection Program loans authorized by Congress;
- expanding three existing programs to send $850 billion to households and small businesses.
TRENDPOST: Beyond those engaged in trading and investing, the general public is oblivious to Fed anti-capitalist actions. Thus, Fed efforts so far have drawn little criticism. Among the complaints are that large companies, especially those located in the U.S. northeast and which are customers of Wall Street banks, have been granted larger loans, and a larger number of them, than companies located farther from financial hubs.
TRENDPOST: For more on how the markets are being rigged, see Trends Journal contributor Gregory Mannarino’s article in this issue, “U.S. STOCK MARKET: A CRIME IN PROGRESS.”