Why the Fed’s new index approach to buying U.S. corporate debt ‘changes everything’
Borrowing by big U.S corporations was expected to slow down going into the summer after the first five months of the year saw a record $1 trillion worth of new investment-grade corporate bonds issued.
But the pace of borrowing sped up again this week after the Federal Reserve unveiled changes to its $750 billion emergency corporate lending facility on Monday to make it easier for credit to flow to a broad-base of companies during the coronavirus pandemic.
Specifically, the Fed said that it would start buying eligible corporate bonds included in standard indexes used in the secondary market, where debt trades on the open market once it’s issued, rather than just buying corporate bond exchange traded funds.
Those purchases, importantly, will no longer require certification, a formal process where a company shows it is not insolvent and it also satisfies the conflict-of-interest requirements of the CARES Act intended to prevent businesses owned by senior government officials from taking advantage of stimulus funds.
“The big difference is that this is going to allow them to buy bonds without companies having to certify any sort of eligibility,” said David Del Vecchio, a portfolio manager at PGIM Fixed Income, in an interview.
“This new index-based approach really kind of changes everything.”
Like bizarro world. Side thought.. im trying to remember if I learnt austrian or kenseyne economics in high school. Maybe neither… ahh well
Another crime scene by the Fed, which needs to be dismantled before they completely destroy existing financial markets.
Or maybe just let them crash and burn.
There is a fundamental moral issue here: Why is the Fed buying corporate bonds, which were issued to fund share buybacks, so that executives were the biggest beneficiaries?
Why are not these companies issuing equity to pay back bond holders?
Why is the taxpayer on the hook again to these criminals?
“They” do not teach Austrian economics in schools or college.
So one of indicator for credit condition financier follow is credit spread: ratio of High yield bond to treasury bond TLT. My fav now is manipulated by FED. Wow.
Market will not know real credit condition any more.
This post alerted crash is coming.
https://goldtadise.com/?p=456926