The Federal Reserve will start to sell off its $13.7bn outstanding amount of corporate bond holdings from their Secondary Market Corporate Credit Facility (SMCCF) portfolio established in March 2020. The Fed had set up the temporary lending facility for pandemic relief aimed at increasing liquidity in the corporate bond market and encouraging borrowing despite market turmoil. The SMCCF began by including only investment-grade corporate bonds and bond exchange-traded funds and later expanded their investment to include lower credit quality bonds. Many criticized the Fed’s purchase of corporate bonds, stating it unfairly benefitted larger companies and bailed out potentially inefficient firms. In their Wednesday statement, the Fed affirmed, “Portfolio sales will be gradual and orderly” and they aim to prevent adverse effects by assessing “daily liquidity and trading conditions”. Despite their announcement, the Fed still plans to purchase government bonds to foster macroeconomic stability and lending. The Fed will provide more details about the unwinding of SMCCF before sales begin.
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