The Federal Reserve will begin purchasing individual corporate bonds to bolster the availability of credit for large employers, the Reserve Board announced Monday.
The corporate bond buys will be facilitated through the Secondary Market Corporate Credit Facility (SMCCF). The Fed issued a new term sheet for the SMCCF, which was one of two facilities the Fed established in March with Treasury’s approval to facilitate the purchase of as much as $750 billion in corporate debt and exchange-traded funds (ETFs) designed to provide broad exposure to U.S. high-yield corporate bonds and the market for U.S. investment-grade corporate bonds.
The Fed has been making ETF purchases through the SMCCF, but the announcement Monday allows the Fed to buy corporate bonds in the secondary market from investment-grade U.S. companies under certain conditions, which are spelled out in the term sheet and also on a frequently asked questions page.
The SMCCF’s sister program, the Primary Market Corporate Credit Facility (PMCCF), is designed to provide companies access to credit by purchasing qualifying bonds as the sole investor in a bond issuance or purchasing portions of syndicated loans or bonds at issuance. The PMCCF has yet to launch, with the Fed saying on the FAQ page that additional information, including the start date, is forthcoming.
Monday’s announcement comes a week after the Fed announced revisions to the Main Street Lending Program, which also has yet to open.
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— Jeff Drew (Jeff.Drew@aicpa-cima.com) is a JofA senior editor.