New Fed Bond Market Stabilization Fund Fogs Window

The Federal Reserve Building (Credit: AP)

The Federal Reserve Board has changed its weekly reporting in a way that may make it more difficult for outsiders to know what a new Fed corporate bond market stabilization fund is buying.

The Fed is still including a line for the net portfolio holdings at its Corporate Credit Facilities LLC (CCF) fund in its weekly H.4.1 Federal Reserve Banks condition release.

But the Fed is now reporting CCF holdings of nonmarketable Treasury securities together with information on holdings of newly issued corporate bonds, and existing bonds purchased from bond dealers or other investors through the "secondary market."

The new Fed release, which was posted this afternoon, shows that CCF holdings have increased to $34.853 billion as of Wednesday, up from $1.496 billion a week earlier.

But it's not clear in the new report how much of the CCF money has been spent on corporate bonds and how much is parked in nonmarketable Treasury securities.

Resources

Links to the H.4.1 releases are available here.
An article about the Secondary Market Corporate Credit Facility coming to life is available here.

The activities of the CCF are of keen interest to life insurers, because life insurers have about $2.8 billion of their assets invested in corporate bonds.

The Federal Reserve Bank of New York started setting up the fund and other stabilization funds in March, in response to COVID-19-related financial markets turmoil.

The New York Fed has said that it expects the CCF to spend $75 billion of government money on newly issued bonds, through the primary bond market, and on bonds purchased through the secondary market.

The CCF's Primary Market Corporate Credit Facility is supposed to handle primary market bond purchases, and the Secondary Market Corporate Credit Facility is supposed to handle secondary market purchases.

The Fed has said that the New York Fed has now put $37.5 billion in the CCF.

The Fed has not said how much of the money will go into the primary market and how much will go into the secondary market.

The U.S. Treasury has made a total of $65 billion in equity investments in CCF and two other financial market stabilization funds, the Commercial Paper Funding Facility II LLC and the Municipal Liquidity Facility LLC.

"On May 22, 2020 and pursuant to the facility agreements, 85% of the Treasury's equity contributions were invested in nonmarketable Treasury securities," the Fed says in the introduction to the new weekly H.4.1 release.

— Read How Fed Intervention Has Saved, but Distorted, the Bond Market, on ThinkAdvisor.

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