Federal Reserve to Start Tapering Corporate Bond Holdings

The United States Federal Reserve will start winding down its corporate bond holdings accumulated in 2020 amid the COVID-19 pandemic, according to Reuters.

• Among those to be unwinded are holdings in the Secondary Market Corporate Credit Facility, including corporate bonds purchased in the secondary market and exchange-traded funds investing in corporate bonds.
• The holdings were acquired at the height of the pandemic in 2020, and will be sold in a “gradual and orderly” manner.
• An official said the move is unrelated to monetary policy which at present authorizes the Fed to acquire $120 billion in government securities per month.
• The Fed said the holdings in the SMCCF proved “vital” in restoring the market in 2020 as they supported credit for large firms and boosted employment.
• The facility ended April with $13.8 billion of loans outstanding. This includes $8.6 billion of corporate bond ETF holdings, and $5.2 billion of corporate bonds.