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Brian Chappatta

Fed Exits the Credit Market It Changed Forever

The central bank’s corporate-bond facility encouraged a record amount of debt sales and pushed yield spreads to the tightest since 2007. 

Jerome Powell stands ready to step in again if necessary.

Jerome Powell stands ready to step in again if necessary.

Photographer: Susan Walsh-pool/Getty Images

It’s not exactly tapering, but the Federal Reserve is starting the clock on withdrawing the emergency measures it used to support financial markets during the Covid-19 pandemic.

The central bank said late Wednesday that it would start to gradually sell the $13.7 billion portfolio of U.S. corporate debt and exchange-traded funds it amassed through its Secondary Market Corporate Credit Facility, which was created during the worst of the pandemic-inspired market meltdown in March 2020. The facility marked an unprecedented intervention for the Fed because it effectively pledged to plow hundreds of billions of dollars into company debt if no one else would. That backstop, even if it wasn’t fully used, quickly restored investor confidence, led to a ferocious rally in practically every corner of the bond market and encouraged record-breaking amounts of debt sales from investment-grade and high-yield borrowers alike.