Brian Chappatta, Columnist

Fed’s ETF Purchases Have Changed Markets Forever

The central bank’s corporate-bond facilities may expire on Dec. 31, but their legacy will inform investor behavior for years to come.

November 23, 2020 at 11:30 AM 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.

You can’t put the genie back in the bottle.
Photographer: Andrew Harrer/Bloomberg

Provide news feedback or report an error

Site feedback:

Take our Survey

This article is for subscribers only.

Last week’s public spat between Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell may have set an end date for the central bank’s unprecedented intervention in U.S. credit markets. But make no mistake, the legacy of this episode will most likely permanently change investors’ mindset during periods of crisis.

In particular, the Fed’s swift purchases of corporate-bond exchange-traded funds set a clear precedent for the type of policy response that traders can expect during the next period of economic distress — or what section 13(3) of the Federal Reserve Act calls “unusual and exigent circumstances.” In contrast to the central bank’s Main Street Lending Program and Municipal Liquidity Facility, which didn’t get many takers, the Secondary Market Corporate Credit Facility revved up in a hurry and provided an even stronger backstop to financial assets than traders saw coming.