2020-06-30 —

``Disclosures filed this week surrounding its credit facilities show the Fed is not only buying the bonds of struggling companies hit hard by the coronavirus pandemic but also some of the stalwarts of American industry -- Microsoft, Visa and Home Depot just to name three companies whose debt the Fed holds directly.

The Fed holds an expansive list of other companies indirectly, including names like Apple and Goldman Sachs, through exchange-traded funds it has purchased.

In addition, it has purchased bonds in speculative-grade companies as well as ETFs, including the SPDR Bloomberg Barclays High Yield Bond, a fund in which the Fed holds a $412 billion position.


"It does sort of make you wonder if it makes sense for them to be buying bonds of Apple. Spreads are so tight and stocks are doing so well. You wouldn't think they would need support from the Fed," said Kathy Jones, director of fixed income at Charles Schwab. "The reasoning I guess makes sense. But when you look at the outcome, you scratch your head and wonder whether this is where we need the money to go."

To be sure, the purchases thus far have been modest.Disclosures the Fed filed over the weekend show it owning nearly $430 million in individual bonds and $6.8 billion in ETFs. That's barely a sliver in a corporate bond market worth more than $10 trillion and fixed income ETFs with assets of $961 billion.


Those purchases thus far have come in the secondary market, or bonds already issued. The Fed announced Monday it soon would open its primary market facility, which will buy directly from companies.

"They've achieved a couple things. They've managed to follow through while having very little impact on how those bonds actually trade," said Tom Graff, head of fixed income at Brown Advisory. "This is literally saying we're going to go through the motions of doing what we said we were going to do, but we're going to do the bare minimum and have as minimal impact as possible beyond what we've already created by acknowledging the program will exit at all."

This is at least a bit unseemly given it takes place while small businesses have no Fed facility of their own, and must struggle through SBA programs and unemployment to get any assistance (with possibly the majority of them not getting any, so far).

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