Behold! The Fed’s First $305 Million In ETF Purchases

The Fed bought $305 million worth of corporate credit ETFs this week, the latest update on the balance sheet appears to show.

The Secondary Market Corporate Credit Facility was activated on Tuesday, after a solid month of speculation from market participants who were keen to front-run Powell in high-grade and high-yield products seen as likely targets for Fed buying.

On Monday, the New York Fed said purchases would begin the following day, and flows observed in LQD – the most popular investment grade credit product – were generally seen as representing the Fed’s first footprints in the market.

This is a historic moment in the history of the institution. The Fed is now officially in the business of buying ETFs, much to the chagrin of critics, who have been shouting about “moral hazard” to anybody willing to listen since the corporate credit facilities were announced in March.

A look at the daily flows and other metrics for LQD shows what some assume are the first purchases. “Looks like Fed made good on [its] word as LQD and HYG both saw volume jumps today via some sizable trades”, Bloomberg’s ETF maven Eric Balchunas wrote Tuesday, while being careful to note that there was “no way to know for sure it was them, but given what they said [Monday] and considering non-corp bond ETFs didn’t see [a] similar jump, there’s a good chance”.


Commenting on Thursday afternoon after the Fed confirmed the purchases, Balchunas described the first foray into the market as a “nibble”. “$300 million is only about 1% of the flows into corporate bond ETFs over the past month”, he noted. 

Meanwhile, Lipper data out Thursday showed IG funds enjoyed a fifth consecutive week of inflows, taking in $5.25 billion in the week ended Wednesday.

As the visual makes clear, this is a stark turnaround from the dark days at the end of March, when IG funds were bleeding to death amid worries that the recession brought on by COVID-19 containment protocols would spell doom for an over-leveraged corporate sector.

Meanwhile, high yield funds took in another $4.5 billion, bringing the streak to seven weeks.

And why not, right?

After all, who doesn’t want to invest alongside the benefactors with the printing press?


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5 thoughts on “Behold! The Fed’s First $305 Million In ETF Purchases

  1. Watching the Dow toss aside that down move at mid day made me suspicious …A lot of other activity by other actors is catalyzed at the hint of Fed dabbling in Equities…. That can be mysterious to me but I am certain others have a clear picture of Bank and Hedge fund reaction especially in an ops expiration week ahead….

  2. We dabble unabashedly in speculating into traders’ who speculate that the Fed is only one step away from buying equities. Or, that the Fed’s backstop on corp debt is an indirect boost to corp profitability. Meanwhile, corps are cranking out tons of paper and investors in that debt have a printing press to remove(?) risk.

  3. slowly pushing away from the table (wait…don’t forget the drink) …is how I feel right now…

    mosey on down the road and read up on YCC I suppose

  4. Why does the Fed have to buy the ETFs (incurring principal risk) rather than just accept them as collateral (with a haircut) in a repo transaction?

NEWSROOM crewneck & prints