Here are the 84 companies whose bonds the Fed bought, and the 16 bond ETFs it now holds.
By Wolf Richter for WOLF STREET.
The Federal Reserve disclosed Sunday afternoon the amounts and the company names of the corporate bonds that it started buying for the first time ever in the week ended Friday, June 19. They’re not even rounding errors on the Fed’s balance sheet. The purchases of individual corporate bonds amounted to $428 million (with an M). By comparison, in the week ended April 1, when the Fed was doing a lot of heavy breathing, it bought $362 billion (with a B) of Treasury securities.
In addition, the Fed said in the disclosure that it held a total of $6.8 billion in bond ETFs as of June 19, up from $1.5 billion a month ago.
These bond ETFs and individual corporate bonds combined account for 1/10th of 1% of the Fed’s $7.1 trillion in total assets.
The Fed buys these corporate bonds and bond ETFs in its Special Purpose Vehicle that it calls Secondary Market Corporate Credit Facility (SMCCF). Like the Fed’s other alphabet-soup bailout SPVs, the SMCCF is an LLC entity.
The SPV is funded in two ways: One, with equity capital provided by the US Treasury Department, or rather by taxpayers, or rather by government borrowing, to cushion the Fed against losses; and two, by loans from the Fed at a leverage of 10 to 1. Then the SPV buys corporate bonds and bond ETFs in the open markets via the Fed’s primary dealers. The New York Fed handles all the details.
All these purchases and holdings were already reflected on the Fed’s prior weekly balance sheets in terms of the total amounts. Today’s disclosure just provides the company-specific details.
The Nitty Gritty.
The bonds that the Fed purchased were issued by 84 companies, in industries ranging from tobacco to video games, across the spectrum of US companies, and US subsidiaries of foreign companies (such as Toyota’s US finance subsidiary). The issuers include several of Warren Buffett’s companies, all kinds of energy companies, and some junk-rated companies, such as Ford.
But not a lot of junk on the list.
In terms of junk bonds, there isn’t much. Only 3.62% of its bond portfolio is now rated BB (BB+, BB, BB-), the top category of junk. This includes Ford (BB+). The Fed did not buy any bonds rated CCC or below. With 3.62% of the total corporate bond portfolio ($428 million) being junk bonds, the amount of junk bonds it holds come to $15.5 million.
The categories AAA, AA, and A account for 48.07% of the bonds. The category of BBB, the lowest investment-grade category, accounts for 48.31%.
The average maturity of the bonds is 3.3 years, ranging from 11 months (a Chevron bond that matures in May 2021) to five years (a Honeywell bond that matures in June 2025). Significantly, there are no long-dated maturities in this portfolio.
When these bonds mature, the company pays the Fed face value of the bonds, and the bond disappears off the Fed’s balance sheet. If the maturing bond is not replaced, the SPV can use the proceeds to pay down the loan the Fed issued.
By keeping maturities in the one-to-five-year range, the Fed appears to be setting the stage for letting the bonds roll off its balance sheet and be done with the program once the crisis is over.
AT&T is at the top of the list, with $16.5 million of bonds. The smallest position is Hyatt at $1.09 million – just symbolically dabbling here, really, since hotel bonds could get dicey.
There are also bonds from Southwest, but no bonds issued by American Airlines, Delta, or United, which would have spiced up the portfolio in a nerve-wracking manner for sure.
The table below shows the companies whose bonds the Fed purchased. If the Fed purchased several types of bonds from one company, or from a company’s subsidiary, I added them together. For example, the bonds of IBM Corp and IBM Credit are added together under “IBM.”
|Issuer||Maturity Date||Purchase Amount $|
|9||FORD MOTOR COMPANY||04/21/2023||8,051,573|
|10||CVS HEALTH CORP||03/25/2025||7,762,008|
|12||GENERAL ELECTRIC CO||09/07/2022||7,403,280|
|17||SABINE PASS LIQUEFACTION||03/15/2022||6,512,097|
|19||BECTON DICKINSON AND CO||06/06/2022||6,342,504|
|20||PHILIP MORRIS INTL||11/10/2024||6,236,320|
|21||BERKSHIRE HATHAWAY ENERG||04/15/2025||5,774,200|
|25||FLORIDA POWER & LIGHT||04/01/2025||5,506,758|
|29||BP CAP MARKETS AMERICA||04/06/2025||5,433,591|
|36||WALGREENS BOOTS ALLIANCE||11/18/2021||5,169,408|
|37||ENERGY TRANSFER OPERATNG||01/15/2024||5,156,184|
|38||DUPONT DE NEMOURS INC||05/01/2023||5,122,159|
|40||TOYOTA MOTOR CREDIT||08/25/2023||5,070,899|
|41||CATERPILLAR FINL SERVICE||05/13/2022||5,045,104|
|47||DELMARVA PWR & LIGHT CO||11/15/2023||4,383,302|
|51||GEORGIA POWER CO||07/30/2023||4,208,827|
|52||HP ENTERPRISE CO||04/01/2023||4,143,570|
|56||DTE ELECTRIC CO||03/01/2025||3,373,695|
|58||BURLINGTN NORTH SANTA FE||09/01/2024||3,339,810|
|59||VIRGINIA ELEC & POWER||05/15/2025||3,300,755|
|61||PROCTER & GAMBLE||03/25/2025||3,266,060|
|64||UNITED PARCEL SERVICE||04/01/2023||3,174,262|
|66||DIAMONDBACK ENERGY INC||12/01/2024||3,007,643|
|67||CAMPBELL SOUP CO||03/15/2025||2,847,410|
|68||REALTY INCOME CORP||08/01/2023||2,799,115|
|69||CME GROUP INC||03/15/2025||2,785,633|
|71||REPUBLIC SERVICES INC||08/15/2024||2,682,653|
|73||HOME DEPOT INC||06/01/2022||2,613,999|
|75||ARES CAPITAL CORP||06/10/2024||2,562,600|
|76||GENERAL MOTORS FINL CO||03/20/2023||2,156,573|
|78||DOLLAR GENERAL CORP||04/15/2023||2,140,035|
|79||WILLIAMS COMPANIES INC||03/15/2022||2,103,140|
|81||PHILLIPS 66 PARTNERS LP||12/15/2024||2,069,484|
|82||DUKE ENERGY CORP||04/15/2024||1,663,630|
|84||HYATT HOTELS CORP||04/23/2025||1,090,262|
Corporate Bond ETFs.
At the end of May, the Fed disclosed that it had purchased $1.5 billion in corporate bond ETFs through May 18. Since then, the Fed has purchased more bond ETFs, and the market value as of June 18 of all its ETF holdings combined had increased to $6.8 billion.
This includes several junk-bond focused ETFs, but the amounts are small. For example, its holdings of the popular iShares iBoxx High Yield Corporate Bond ETF [HYG] are only $245.8 million:
|Ticker||Fund Name||Market Value, June 18, $|
|LQD||iShares iBoxx US Dollar Investment Grade Corporate Bond ETF||1,782,971,624|
|VCSH||Vanguard Short-Term Corporate Bond ETF||1,307,906,475|
|VCIT||Vanguard Intermediate-Term Corporate Bond ETF||1,037,071,572|
|IGSB||iShares Short-Term Corporate Bond ETF||607,806,116|
|JNK||SPDR Bloomberg Barclays High Yield Bond ETF||411,874,114|
|SPIB||SPDR Portfolio Intermediate Term Corporate Bond ETF||404,663,795|
|IGIB||iShares Intermediate-Term Corporate Bond ETF||397,995,018|
|HYG||iShares iBoxx High Yield Corporate Bond ETF||245,782,706|
|SPSB||SPDR Portfolio Short Term Corporate Bond ETF||237,257,161|
|USIG||iShares Broad US Dollar Investment Grade Corporate Bond ETF||150,392,808|
|HYLB||Xtrackers US Dollar High Yield Corporate Bond ETF||56,224,553|
|USHY||iShares Broad US Dollar High Yield Corporate Bond ETF||49,015,670|
|SLQD||iShares 0-5 Year Investment Grade Corporate Bond ETF||43,799,540|
|ANGL||VanEck Vectors Fallen Angel High Yield Bond ETF||28,862,665|
|SHYG||iShares 0-5 Year High Yield Corporate Bond ETF||23,341,086|
|SJNK||SPDR Bloomberg Barclays Short Term High Yield Bond ETF||20,741,161|
The Fed will likely continue to buy some corporate bond ETFs and individual corporate bonds. But the bond market is currently red-hot. Spreads have tightened. And even American Airlines and Carnival Corp were able to issue new bonds though their revenues have collapsed. They need billions of dollars in new fuel to burn to get through this crisis, and they got the first pile of it from investors.
The Fed looks at this as a sign of success – that it essentially has done its job to keep credit flowing to these companies, and that it really doesn’t need to do much more. So now, it’s dabbling in these bond purchases, dabbling by Fed standards, where big moves are counted in hundreds of billions of dollars, not in millions or a few billion.
On the other side of the coin.
In reality, the Fed has been pushing up bond prices and stock prices to bail out asset holders so that they have absolutely no skin in the crisis, and this strategy has widened by a massive amount the already huge wealth disparity between asset holders and labor in the US – and the bigger the asset holders, the more they got from the Fed.
It also creates the notion that the Fed will always bailout asset holders, and that there is never a price to pay for any downturns, and that only people who work for a living have to pay that price.
What’s so insidious about the Fed’s bailouts of investors in hedge funds, mortgage-REITS, stocks, bonds, leveraged loans, and other often risky assets? The destruction of capitalism. Read... America Convulses in Pain, Fed Bails Out the Wealthy
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Doesn’t the Fed operate under a charter? I have been lead to believe that they are only able to buy US Government guaranteed debts. If they are buying non government-guaranteed debts, doesn’t that mean we the people are essentially enslaved to the Fed?
The Fed is doing this via its SPVs. The Fed refers to Section 13 paragraph 3 of the Federal Reserve Act, as amended in 1991 and then again in 2010 with the Dodd-Frank Act, which attempted to put some limits on what the Fed can do under this 13(3).
The section as amended allows the Fed, “in unusual and exigent circumstances,” to lend to individuals, partnerships, and corporations that are not banks (the Fed already lends to banks on a routine basis). According to Business Law Today, the limits set forth in the Dodd-Frank Act include:
Such lending must now be made in connection with a “program or facility with broad-based eligibility,” cannot “aid a failing financial company” or “borrowers that are insolvent,” and cannot have “a purpose of assisting a single and specific company avoid bankruptcy” or similar resolution.
In addition, the Federal Reserve cannot establish a section 13(3) program without the prior approval of the secretary of the Treasury.
Revised section 13(3) could be used to create facilities like the alphabet facilities of the financial crisis mentioned above [which is what we now face], but the intent of the revisions was to preclude loans like those to JPMorgan/Bear Stearns and AIG.
In its explanations of the alphabet-soup of bailout-and-enrichment programs, the Fed always refers to 13(3) of the Federal Reserve Act as the source of “authority.” The Fed sets up Special Purpose Vehicles (SPVs) as Limited Liability Corporations. The US Treasury (taxpayer) provides the equity cushion. The Fed lends to the SPV to leverage it 10-to-1. The SPV buys the securities. And Powell refers to these creatures as “13(3) facilities.”
That ‘jaw boning’ worked nicely for those of us jumped and front ran Fed before it actually made the purchase!
I failed to front run the ‘QEs’ before, since my rational mind couldn’t digest it. NOT any more in this crony capitalism openly and shamelessly supported by Fed!
Still I (already bought) will be buying predominantly IG rated bonds of ETfs issued by Blackrock along with HYT!
Corp bond Etfs & Gold Etfs, too!
I invested in a bunch on that list. So tomorrow a green day?
“…SPVsare funded…by loans from the Fed at a leverage of 10 to 1. Then the SPV buys corporate bonds and bond ETFs in the open markets via the Fed’s primary dealers…”
How does this translate when $1M of Hyatt bonds, for example, are purchased by an SPV ? Does this mean SPV uses $1M of funny $$ to buy $1M Hyatt bonds with a 5% yield, then the same $1M of funny $$ buys $1M of IBM…same funny $$ buys $1M of LUV and so on (x10) ?
You can look at it this way: $1 million in Hyatt bonds were bought with $100,000 in equity capital from the Treasury and $900,000 in loans from the Fed.
The SPV is like a separate entity that takes the first 10% of any losses. If the Hyatt bonds go to zero along with a number of others, the federal reserve will be paid in full as long as the total losses don’t exceed 10%.
Also, the treasury can always add cash to the entity if necessary- the fed provides its money anyways. The main purpose of the structure is to make sure there is some congressional support for this activity.
The Federal Reserve’s actions may be a number of bad things with a number of bad side effects, but they are unfortunately legal.
Jared Dillian tweeted something like “I’m sick of people complaining about the fed. We aren’t policy makers, we’re here to make money. If the fed is an arsonist-firefighter than its time to roast some marshmallows.” I don’t like the fed either but he’s right – as far as we’re concerned the federal reserve is a force of nature, perhaps an elephant in a China shop, and we just have to work around it.
I believe this section of the law is what Jon Hussman is currently suing about.
Certainly this “new” part of the law was purposely enacted to get around the spirit of the original charter.
Hussman has been saying this is illegal (along with others), for over 10 years now.
I am amazed at the low amount. I guess that the “Fed” was able to funnel enough US taxpayer legal tender to its banksters and their cronies that they did not need it to buy all of their junk bonds, pay their yacht payments, pay off their paternity suits, etc.
However, I think that we are about to fall into a growing vicious circle. Not just small business owners, whose businesses were gutted by the coronavirus, but thousands of tenants are about to be evicted.
That will make thousands spend less as the desperately look for work and move to new locations, while the landlords are trying to garnish (assign in CA) their wages. Remember that most Americans were already unable to pay for a $400 emergency before the coronavirus.
Thus, we will have more and more furious, homeless or even more oppressed, wage-slave Americans moving farther away to look for new, cheaper housing. Fortunately, the banksters and certain, wealthy crooks in government refusing to give any relief while they greedily continue to suckle on the government’s teat, gamble in derivatives, etc., get guaranteed bailouts for their insolvent companies, etc.
More and more Americans are becoming aware of the tens of trillions (with a t) that the banksters looted from the American people via the “Federal” Reserve since 2006 and are looting now. Perhaps, things will get bad enough that we can teach them what happened to Marie Antoniette, who was a far nicer person than any of these parasitic banksters or bribed, crooked politicians.
Interrupted by child so forgot to add:
Additional pressure will be placed on our economy because many, many persons will not be able to get jobs that pay decent wages. So many small businesses will just disappear. Some politicians’ efforts to provide relief have been blocked by others who want more money for their cronies, so this will increase each day.
Absolutely sickening. All of the BOD and C-Suiters laughing all the way to the bank with their stock option gains for corporate buy-backs fueled by the debt.
Gojira!!! Oops, false alarm…just the Fed having a snack between regular meals. Everyone in Tokyo can go back to work now. Trains are running regularly. Keep calm and carry on.
It’s working because futures are green right now LOL. This is insanity.
Wait for the sunrise and then later at 9.30 AM. Covid is NOT cooperating!
THINGS CHANGE, drastically! I bet on RED by the end of the day!
Now they’re red. Can’t rely on anything staying the same for long, these days :-]
I was wrong for the end of the day prediction.
Can’t compute any more why the indexes go up (or down) when covid rising up with re-lockdown in southern states. I am waiting big leg down on Thursday July 2.
But my bonds bet are ok, so far.
So… The Fed said some words and sprinkled a few coins, and investors…errr…traders gave huge piles of money to companies caught flat-footed by the current crisis.
That the companies were short-sighted and greedy there is no doubt but it seems that it’s the private purchasers of the new debt that are really on the hook here, not the Fed…errr…taxpayers sprinkling the coins.
Going forward, companies will certainly fail but none can say they were caught flat-footed. They have (had?) their chance right now to get all the capital they need to get through the crisis. Everything that happens going forward is just the rough hand of natural selection and those that thought the Fed would backstop their purchases of junk bonds may be the ones in real trouble…
…assuming that the Fed now stops or at least limits itself to only coins. If so, then this all seems a pretty wiley strategy on their part.
The problem, as I see it, is that now the Fed is directly picking winners and losers. The US is not longer a capitalistic economy. Not even a crony capitalistic economy. And I don’t see any scenario where this ends well for anyone.
If the fed likes you, it buys your junk, if not, tough s*&t.
Can we just crash this pile of dung and hit the reset now.
Everything has already benefited before the Fed bought a single thing. Traders bought everything thinking the Fed would take most, if not all of it, if their hands. Looks like that’s not going to happen.
Meanwhile in the land of small business. Yelp just reported that 41% of the businesses in the platform have permanently closed.
We need green shoots. Where’s Bernanke when you need him?
Yelp says that of the 141,000 businesses that are currently marked as closed at all (temporary or permanent), 41% of them are permanent.
Right now (since last thursday), HY with the avg maturity date of about 5 years, has entered a land where it how has a negative carrying cost for those who bought the overall market of these ~5 year maturing at par, meaning that avg yield (after adjusting for +/- par, maturity, in default/bankruptcy of unsecured) is less than the log normal return from par on avg by about -62 bps from Friday (was about -7bps on last thursday).
Over 85% of the HY market is unsecured… and unless Jerome can stop the bankrupties/defaults… it wont matter whose balance sheet its on… most of this stuff will go to zero.
NOT when Jerome Powell can create Trillions of digital out of thin air, any time, he wants! Fed will fight it ALL the way!
USA is on the way to Japanification.
lol it still wont matter, it will just be that in the day before the company defaults or applies for bankruptcy jerome will be buying above 0, and when the bankruptcy process starts, it will be 0 if its unsecured, perhaps overnight lol
Gap down on the HY issuances, WireFraud style lol
Fed will support the CREDIT mkt, as long as it can. Can create unlimited digital $$!
Without it, the equity mkt will start diving. I ride with Corp IG rated bonds and HYT! I am nearly 60-70% in cash! Rest with gold/miners ETfs,Div ETfs and against the mkt. More volatility ahead and opportunity for ‘tactical’ trading both ways! My pay day on July 2nd!
(been in the mkt since ’82)
Japan Debt to GDP is around 250%
USA is around 140%, long way to catch with Japan!
Lady’s and gentlemen here are your winners!
Every other company and small business is a looser.
Capatilism has finally arrived!
So why has JNK been in rally mode, despite minimal purchases by the Fed?
Did the market buy garbage bonds in massive quantities because they thought they’d be selling it to the Fed?
My guess is there will be a sell off in JNK now they know that they are the greater fools.
NOT when Fed is backing Corp credit mkt where 50% are of junk grade!
Without smooth functioning CREDIT mkt there is no such thing as functioning Equity mkt! Credit mkt is the foundation upon which America’s Equity mkt and the Economy is built for decades!
When the credit mkt craters, say good bue to STOCK mkt!
Jawboning by the Fed, and hype about it in the media.
and yield chasing after the Fed destroyed the savings rate (further)
But it is working, at least so far! LQD is going up but NOT HYG or JNK. HYT (Blackrock ETF) is holding pretty good.
By supporting Corp credit mkt, Fed is supporting Equity mkt!
Ride with the wave, as long as I can.
Long term, it is secular BEAR (with expected spikes) with ‘lower of the highs lower of the lows’ Fed cannot control ‘covid’, cannot create jobs or make earnings go up!
the fed tries to trick us into front running them: “o man, the feds buying junk bonds? i’d better buy some too!”
we gasp in horror at a $7 trillion balance sheet. but when they really start strong-arming markets it will require hundreds of trillions. don’t believe it? just wait!
Every good scam starts small.
You have to obtain the acquiescence of the mark (taxpayer) first. That way they can’t back out later on, having given already given tacit permission.
The bright side is we now have an updated list of TBTF companies.
My view as well. The Fed has only dipped in its big toe to test the water. Once it gets the signal that the water is fine, i.e., the economy is going deeper into the sh***er, it will be into this new venture up to its knees or hips or into the deep end of the pool
If only it could work, GrassRanger.
The Fed’s economists are so blinded by their own PR that they “saved” the economy last time, they think tripling down will do the trick again.
However, they’ve delayed the day of reckoning much longer than I ever thought possible. So who knows?
It would be interesting to be a fly on the wall and see how the decisions were made, why, and who made them. Somebody directs research and someone signs off.
I did find this: Federal Reserve Bank pays its employees an average of $78,830 a year. Salaries at Federal Reserve Bank range from an average of $50,469 to $123,913 a year. Federal Reserve Bank employees with the job title Financial Analyst make the most with an average annual salary of $69,435, while employees with the title Financial Analyst make the least with an average annual salary of $69,435.
Not exactly rocket scientist wages.
The way that the game is played is that the regulators are paid low salaries by the government. This makes them hungry for a better job.
They then face a choice. They can become the friend of a company that they regulate by writing the rules to help that company, and thus get a much, much better paid job at that company. Or, they can write the rules to ensure fair and equal treatment of all companies at all times, and thus never get a better job offer from any company in that industry.
Guess which one they choose 99% of the time.
The “revolving door” makes the regulators rich as soon as they give a company enough goodies to trigger a job offer.
Ummm the average annual income in America for a family of 4 is what these days? $50k? I’d say everyone at the FED is doing great! And those average salaries are probably completely lower level employees i.e. admin, HR assistants, hell probably the janitor. I guarantee you the middle managers are making way north of $150K. If BLM joggers weren’t so stupid they’d be tearing down the FED and chaining the doors of Chase, Wells Fargo and burning down Goldman Sachs…….ahhh one can dream!!!
The American taxpayer sucker is getting lined up. Congress has not said squat , translation , Fed green light. It’s foolish to think this is limited. They got the pipeline set-up and have tested the piping. They know they will have to move quick to print trillions to get ahead of the next event. Nothing was fixed From 2008 execpt there’s geometrically more fiat debt balls to keep juggling in the air.They didn’t set up SPV’s to pass out a paltry few millions. This baby is ready to trot on a moments notice. The Money Printer that goes Brrrrrrrrr… now has an overdrive to go with the cruise control to go blowing down the great American fiat highway.
Congress has been complicit in this GAME from the very beginning, when they failed to enact required tight fiscal’ policies but allowed by default Fed substitute MONETARY ( Easy-Peasy money) policies since 2000 under Greenspan!
Lawmakers of both parties (WELFATRE & WARFARE) love deficit spending and now MMT is on the horizon!
(been in the mkt since ’82!)
I wonder if a CongressPerson would be able to get them to goose a particular equity. Since it is legal to buy a CP it would be much safer for all concerned than buying a Fed employee.
Nobody shot down the trial balloon, so the next time that there is a market crash, or correction, or even a 5% burp, they can open the floodgates and go on a buying binge.
Big policy changes start small. There is no Congressional pushback because the fiscal conservatives are doing this. Once the other party is in charge they will pick and choose corporations to bailout based on their laundry list of demands; environmental, social, etc. We are probably heading for a Euro style corporate socialism.
We are quite much used to such things here in Europe, all of our big businesses have been running on QE money for years now. Welcome to the club America.
I’m convinced though that on the long run this is just cheap money given away, if it has any positive effect it’s really short term until the money markets recover from shock.
“The Fed looks at this as a sign of success – that it essentially has done its job to keep credit flowing to these companies, and that it really doesn’t need to do much more.”
I think I saw Bill gates and Mark Zuckerburg in a Food Bank line this weekend.
I’m Sssssoooo relievied Microsoft was rescued from grasping at it’s absolute last stray pennie and nickel, on the verge of bankrupcty and oblivion until Jeronome gave impoverished Bill Gates some of my tax $$$. Because of Jeronome, Bill can now finally afford to give a big fat salary raise to those thousands of folks in India he’s outsourced American jobs to! Have you seen Bill’s mansion in Seattle? He’s suffering I tell you…SUFFERING. Took a cruise and boated by it some ten years ago. Fantabulistic. But I actually prefered Seattle’s underground city, beng a fan of Night Stalker/Night Strangler.
ZH says Apple got some of my tax $$$, too. Mark is also suffering in poverty….SUFFERING I TELL YOU!
Isn’t that special.
There are 84 companies on this list in the article. All names with amounts. Check them out before you comment. They’re right above you.
But here is the thing: the money for these bond purchases — just a minuscule $428 million — didn’t go to the companies. These bonds were bought in the secondary market, and the SELLERS got the money, not the companies. The effect of the whole scheme — mostly through jawboning — was to drive up prices and reduce yields and spreads.
It would be fascinating reading to peruse a list of the sellers names. Fat chance. I wonder if the seller list would be shorter.
Companies borrow and issue bonds thru investment banking network and get the capital for their buy-back shares. APPLE did it recently like that by (borrow- zrp & issue bonds – bought by Fed!)) with 300 B!
They are winning both ways!
Fed is buying bonds issued by foreign companies TOYOTA +banks!
Was that your junk position they bought. Cover the S&P short , long HY…..
LQD up but JNK and HYG down today! Fed favors IG bonds than the other two, but it could change !
I added calls on LQD and reduced the same on the other two but kept the puts on them as hedges.
Bond question: the standard advice to ordinary retirement savers was always to have a mix of stock and bonds, and shift to more bonds toward retirement.
However, now that we have landed at zero yield on the Treasury and, let’s assume, no real chance of negative rates in the U.S., what role do bonds play? Is there a reason to have them at all (as opposed to safe cash at 1%)?
Going on the assumption that bond prices will be flat or decreasing going forward (if Powell ever raises rates), I’m unclear how bonds or bond funds relate to retirement now? Thank you!
The only thing that I can think of to “balance” a portfolio now is to buy foreign stocks so that if the dollar crashes from the Fed pumping up the money supply, the foreign holdings will act as a counter-balance.
The problem here is that multinational corporations are already, well, doing business in more than one nation, and it’s hard to find a “pure play” where a change in the value of the US dollar is either all good, or all bad, for any big corporation.
Precious metals are really a form of wealth preservation rather than an investment, as they don’t generate any return.
‘if the dollar crashes’
Imagine the effect on the rest of the global currencies! Where does the over night CASH are parked? Yen? YUAN/ Ruble? Eu? Find out where they parked their cash during previous BEAR mkts (2000 & 2008)
US $ is the least dirty shirt hated but sought by every one out there!
$ crash will make American products cheaper!
Gold miners give some dividend unlike GLD itself!
Long term growth prospect is in EM mkts but not right now. Stick with various( sectors/industry) kind of ETFs (domestic & global) for dividends, by nibbling on them slowly!
Cash at 1.0% where? Did you check your bank statements, lately?
Bonds ( corp and treasury) play at this point is capital gains and less on yield.
Fed committed to keep the zrp until 2022. With deficit and debt increasing, Fed will be hard pressed to raise rates. I pair them gold and miners ETFs, in case ‘expectation of inflation’ flares up1 (?) If GLD shoots beyond 1800, a new bull may start(!?)
I use my cash ( fluctuating 50-70%) as a DRY powder for tactical trading
for short term -aggressive portfolio and strategic/structural trading for my predominant ‘long term’ portfolio. ( Retired about 15 yrs ago-been in the mkt since ’82)
Can we conclude that these companies are now to important to fail? And that it’s relatively safe to buy their stocks after the big crash thats inevitably coming?
Wirecard was a component of the DAX 30 and hence as sacred and untouchable as an Apis bull in Ancient Egypt. Bafin (the German financial regulators) even went as far as making completely illegal threats against investigative journalists to protect the company and its bonds and shares.
Yet look at it now: less than a week later it’s just a “colossal wreck”, like the Ozymandias statue imagined by Shelley.
Wirecard shareholders are going to lose the shirts off their backs, bondholders will get cents to the euro in bankruptcy and Bafin will be sued to the tune of hundreds million euro.
Sadly in the light of the Covid-19 fiasco it’s likely none of those responsible will be punished: all the aspiring tinpot dictators and their coterie of “scientific” advisors, wartime profiteers and other assorted parasites don’t want to set a dangerous (for them) precedent.
Just make sure the “too big to fail” company your are putting your hard earned money into is not another Wirecard.
No, that thinking is missing the point. The effect is market-wide, FED buys these companies because they are investment grade, thus they can show that they’ve been prudent about what assets they hold, but they are not cherry picking individual companies and bonds. The spread between AAA and C- rated companies remains the same, thus such QE schemes help everyone, not just those appearing on the list. That doesn’t makes them any safer (though they are already pretty safe) or too big to fail. They are just as likely to fail as before.
ETf – LQD is the proxy for IG rated Corp Bonds. But 50% of that is BBB rated or below including C!
HYG is high yield and JNK for Junk bonds
IG rated Bonds are being down graded continuously by the rating agencies with prospect of bankckruptcy increasing, slipping into BBB or below. This is a moving target.
@CRV – it’s better to think of these companies as well-connected. Whilst it may be some sort of endorsement it certainly doesn’t mean they are safe.
Corp credit mkt is the foundation, upon which Equity mkt is built by Fed/CBers. In our DEBT based/induced Consumption Economy CREDIT/DEBT availability (+ liquidity) is important. By supporting Corp CREDIT mkt, Fed is indirectly supporting the Equity(stock) mkt!
Doesn’t mean stocks are ‘safe’ In fact they are over valued, over bought and over hyped by the Wall ST. Makt evaluation are streched by 2.5 to 3.0x
Fundamentals and the Economy on the ground -post covid is increasingly NEGATIVE. Without Fed, there is NO stock or the CREDIT mkt!
Once the earnings for 2nd qtr come out in mid July, PEs for the stocks will have to contract, no matter how much Fed provides the liquidity! Fed CANNOT create jobs or jack up earnings. This is a mine field for the newbies who got in after GFC!
Been in the mkt since ’82. Gone thru more than one Bear. Be aware that S&P lost nearly 60% and Nasdaq 80% during GFC(2008) in 18 months.
Same after dot com(2000) with 24 months!
Your recent article, America Convulses in Pain, Fed Bails Out the Wealthy, is one of your best and most important opinion pieces of any writer on this subject I’ve read all year.
Wolf provides an important service by constantly tracking the REAL transfers of REAL money behind all of these appropriations and “facilities”. Most news media simply parrot the huge numbers and give the impression that all of these huge numbers are real debt or real spending. In fact the numbers are just numbers, intended to create impressions and steer decisions.
So the FED is now supporting the tobacco industry, WONderful.
JV, no, it bought these bonds on the open market, not directly from companies.
TSA daily checks over 600,000. It was 90,000 in April. One of several data points showing the economy is improving on all fronts and continually so, despite the MSM hype about a 2nd Wave.
It’s all gonna be OK everyone. Walk off the ledge…..
Just Some Random Guy,
???? Here is your V-shaped recovery: that 600K in daily checks is still down 76% from the same weekday last year, based on the same TSA data you cited:
Wolf, what does it mean to the Fed if and when some of these bonds default and become worthless?
Don’t worry Jdog. It’s only money. We’ll print more.
They’re playing with taxpayer dollars, they will bail you out with more taxpayer dollars. Ponzi Bizarro!
The taxpayer eats the first 10% of the loss of the SPV via the equity funding of the SPV. And losses beyond that belong to the Fed.
But the Fed is sitting on $7.1 trillion in securities that are interest bearing, and it earns interest off them. So if it loses a few billion on its defaulted corporate bonds, it’s no biggie. Also, the Fed cannot become insolvent or liquid since it prints its own money.
So without fiscal restraints, political outrage is the only chance to reign in the Fed and its support for corporate financial malfeasance?
Have you seen any by any lawmaker or in the MSM?
since 2008 or even 2000? DEBT as the panacea has been accepted for all our public/private sectors over 20-30 yrs, now world wide!
Both parties ( WELFARE & WARFARE) love deficit spending. Now they are salivating for MMT!
The elephant running through the bond market gives new meaning to the expression, “Junk in the Trunk..”
So I am guessing the companies listed are the companies that are going to rebuild after this depression…. I mean recession :)
The camel’s nose is way under the tent.
The Fed will create enough fiat to eventually buy everything.
Dual mandate,charter law, Ha. Create an LLC for that.
Stop prancing around the reality.
You will belong to them. Bought for whatever amount of fiat is needed to be created.
They use your money against you, when are people going to figure this out?
JNK went down on high volume today(June 29th). The markets hardly noticed as they were too busy rallying on the prospect of a July 4th rally and the ‘good news’ Trump will relase ‘soon’. I assume it will be vaccine related.
I suppose most buyers think the Fed will rush in to buy JNK before it gets too low. No need to panic ever again.
Both JNK and HYG went down but NOT, IG-etf LQD! It went up slightly.
Fed cannot afford NOT to support IG rated Corp bonds, without which stock mkt will start shaking!
“But not a lot of junk on the list” — not yet, you mean. Next major market selloff, Fed gonna ramp up the bond buying big-time, and “expand the quality range downward”.
Prediction: before end of the year, the Fed will have begun direct purchases of corporate equity. The ultimate stock-price-goosing corporate-share-buyback program, if you will.
Once defaults and Bankruptcies keep increasing some of those IG rated Corp bonds will slip into junk category – BBB or below. If unchecked, credit mkt for Corporations will start cratering! Then the Fed is forced to jump in to bailout them!
WAIT & SEE!
Wolf, it strikes me that they just want to show us they can buy lower grade assets if they want to. There was a day when Ford bonds were not rated junk, as well. The Fed is exhibiting its ability to breathe life into the scrapyard of corporate America that it reshaped from a vigorous entity into its own image (everything is now artificial and temporary). I’ve viewed the Fed as the problem since catching on in 2003. I’m thinking that many more are going to grasp it now, quite a few more of them in the near future!
micro, small and medium size businesses are bleeding due to something that was not their fault (including HTZ, JCP) and the fed is buying bonds from outsourcing monsters such as IBM and Walmart? Behalf of every American I must say that this is outrageous.
I read that according to the results of the meeting of the Federal Committee for Open Markets, the Fed kept interest rates at the current level near zero, saying that it “doesn’t even think” about the increase. The central bank gave its cautious forecasts for GDP growth, employment and inflation. But the largest stock indexes at the close of trading on did not show a unified dynamics against the background of news about the Fed’s interest rates at the same level.