Brian Chappatta, Columnist

Fed Doesn’t Really Need to Buy Corporate Bonds

Even though the debt market is running smoothly, the central bank apparently doesn’t want one of its new facilities to go to waste.

June 15, 2020 at 7:46 PM UTC

By Brian Chappatta

Brian Chappatta is managing editor of Bloomberg News' leveraged finance and distressed debt teams. He was previously managing editor and team leader of its wealth group. Before that he was a Bloomberg Opinion markets and finance columnist and a bonds reporter for Bloomberg News.

Jerome Powell is on a buying spree. — Jerome Powell is on a buying spree.
Photographer: Andrew Harrer/Bloomberg

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The Federal Reserve realizes that it doesn’t have to buy U.S. corporate bonds, right?

I ask this question only somewhat in jest. In a surprise move, the central bank announced Monday that it would start to buy individual company bonds under its $250 billion Secondary Market Corporate Credit Facility, specifically by following a diversified index of U.S. corporate bonds created expressly for its program. “This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity and other criteria,” the Fed said in a statement. Notably, issuers of bonds acquired through this program don’t need to provide certifications, unlike the stipulations for individual debt purchases.