Federal Reserve: Corporate Buying Lite

The healing process on credit markets has been impressive. So much so that when the Fed has been ready to deliver on corporate buying, the need has been downsized. The buying, while not insignificant, is far lower versus volumes that could have been imagined when the program was first dreamt up. This is thematic and captured in the continued easing in Libor.

Fed buying of ETFs and commercial paper support has been less than expected. But no need to go in big

So far Federal Reserve buying of corporate ETFs is running at USD 1.8bn. That equates to some USD 260m per day (rounded). Annualize that and we hit USD 60bn. That can be compared with the bond ETF market capitalization at USD 900bn, equating to about 6.6% of it.

That said, the corporate buying program is due to end by September, so extrapolation through to September at the latest pace equates to 2.75% of the bond market capitalization in ETF. Not a nothing number by any means, but also not massive by any stretch.

Note also that the Fed’s program has a total potential size of USD 750bn (including help for the primary market), so based off that it is running at well below what could have been expected if the Fed had to go in hard and heavy. But that’s the thing; there has been no need to go in big.

More support for mainstreet and off-shore dollars contrasts with less support needed for the domestic financial system

A healing process had been underway in advance of the launch of the corporate buying program. The same happened ahead of the initiation of the commercial paper program, which to date has had just a little over USD 4bn spent on it. A busy primary market has meant that help for primary issuance generally has not been as needed compared with when shutdown crisis first broke.

We have also had another reduction in deployment of the money market liquidity facility to the tune of USD 3bn, which is now down to USD 36bn in cumulative terms. Credit allotted to primary dealers is also down, by another USD 3bn. At the other extreme, take-up of the paycheck protection program for smaller corporates is up another USD 7bn to a cumulative USD 45bn.

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