• Latest
  • Trending
  • All
The Federal Reserve’s pledged support for exchange-traded funds may not end up costing the central bank much, but will still have the desired effect of keeping the credit market afloat.

Fed’s credit operation launched, but job already done

May 14, 2020 08:57
Equities struggle amid economic and China-related concerns

Equities struggle amid economic and China-related concerns

December 29, 2022 08:55
Dollar lacks upside momentum due to lower Treasury yields

Currencies stuck in ranges as New Year holiday looms

December 28, 2022 07:01
Stocks gain, dollar eases ahead of job market data

Dollar pressured by positive risk sentiment in thin markets

December 27, 2022 04:50
Dollar lacks upside momentum due to lower Treasury yields

Dollar tries to shrug off the pressure

December 26, 2022 05:13
Investors spooked by strong US data

Investors spooked by strong US data

December 23, 2022 11:55
Dollar lacks upside momentum due to lower Treasury yields

Dollar back under pressure after short-lived relief

December 22, 2022 05:17
Risk demand reemerges cautiously, but caution remains in place

Risk demand reemerges cautiously, but caution remains in place

December 21, 2022 08:49
Dollar lacks upside momentum due to lower Treasury yields

US dollar resists selling pressure

December 20, 2022 10:44
Market sentiment dented by recession fears

Market sentiment dented by recession fears

December 19, 2022 02:53
Dollar lacks upside momentum due to lower Treasury yields

Greenback stays on the defensive nearly across the board

November 16, 2022 05:34
Investor sentiment improves, but gains limited

Investor sentiment improves, but gains limited

November 15, 2022 05:46
Dollar lacks upside momentum due to lower Treasury yields

Dollar licks wounds after plunge

November 14, 2022 05:05
  • Terms & Сonditions
  • Contact
Tuesday, February 7, 2023
FWNews - pulse of the forex market
  • FUNDAMENTALS
    Equities struggle amid economic and China-related concerns

    Equities struggle amid economic and China-related concerns

    Stocks gain, dollar eases ahead of job market data

    Dollar pressured by positive risk sentiment in thin markets

    Investors spooked by strong US data

    Investors spooked by strong US data

    Risk demand reemerges cautiously, but caution remains in place

    Risk demand reemerges cautiously, but caution remains in place

    Market sentiment dented by recession fears

    Market sentiment dented by recession fears

    Investor sentiment improves, but gains limited

    Investor sentiment improves, but gains limited

    Risk sentiment keeps deteriorating, dollar climbs

    Stocks celebrate US inflation, dollar slumps

    Virus, US-China tensions hit global markets

    Market sentiment turns cautious amid events in the US

    Investors look indecisive ahead of another volatile week

    Investors look indecisive ahead of another volatile week

  • TECHNICALS
  • Interest Rates
  • Economic calendar
  • Backstage
No Result
View All Result
FWNews - pulse of the forex market
  • FUNDAMENTALS
    Equities struggle amid economic and China-related concerns

    Equities struggle amid economic and China-related concerns

    Stocks gain, dollar eases ahead of job market data

    Dollar pressured by positive risk sentiment in thin markets

    Investors spooked by strong US data

    Investors spooked by strong US data

    Risk demand reemerges cautiously, but caution remains in place

    Risk demand reemerges cautiously, but caution remains in place

    Market sentiment dented by recession fears

    Market sentiment dented by recession fears

    Investor sentiment improves, but gains limited

    Investor sentiment improves, but gains limited

    Risk sentiment keeps deteriorating, dollar climbs

    Stocks celebrate US inflation, dollar slumps

    Virus, US-China tensions hit global markets

    Market sentiment turns cautious amid events in the US

    Investors look indecisive ahead of another volatile week

    Investors look indecisive ahead of another volatile week

  • TECHNICALS
  • Interest Rates
  • Economic calendar
  • Backstage
No Result
View All Result
FWNews - pulse of the forex market
No Result
View All Result

Home » Fed’s credit operation launched, but job already done

Fed’s credit operation launched, but job already done

The Federal Reserve’s pledged support for exchange-traded funds may not end up costing the central bank much, but will still have the desired effect of keeping the credit market afloat.

by FWNews
May 14, 2020 08:57
in News
0
The Federal Reserve’s pledged support for exchange-traded funds may not end up costing the central bank much, but will still have the desired effect of keeping the credit market afloat.

As part of an unprecedented stimulus endeavor, the Fed announced it would support the ETF market in March, and on Tuesday launched the backstop.

Data on what the Fed actually spent in the first few days of the facility’s being open will be visible on its weekly balance sheet published on Thursdays. But investors believe the Fed may not ultimately make significant purchases in ETFs, allowing the central bank to maintain its preferred role as a lender of last resort.

“Let’s see how much they buy and if any,” said Lale Topcuoglu, senior fund manager at J.O. Hambro Capital Management. “The markets are functioning well, … and we have not seen major dislocations similar to the one in mid-March. By and large, the Fed’s announcement already took care of the concerns.”

Credit markets were badly hit as the coronavirus pandemic forced economies across the globe to shut down. Corporate earnings were decimated in many sectors, bond prices dropped, and it became difficult for companies, particularly those with junk credit ratings, to borrow money.

Credit ETFs plummeted in March, with bigger losses in the high-yield sector. The iShares iBoxx High Yield Corporate Bond ETF and the iShares iBoxx Investment Grade Corporate Bond ETF both hit 11-year lows in March before the Fed’s announcement, although they have rallied 16.8% and 21.1%, respectively, since.

In addition to the secondary market facility, which covers the backstop for the ETFs, the Fed on March 23 announced it would buy new bonds directly from companies.

Buying stakes in ETFs allows the Fed to support the entirety of the credit market, without having to pick winners and losers. It offers some relief to highly distressed companies that would not qualify for its primary market facility, which lends to higher-rated companies.

Fed Chair Jay Powell on Wednesday acknowledged the central bank’s actions have already helped, saying that markets had loosened up and started functioning after the announcement, meaning that ultimately the Fed may not be needed.

Issuance of investment-grade corporate debt in April hit a record $256.5 billion, according to Refinitiv IFR, while some of the riskiest companies – in sectors hardest hit by the pandemic including cruise operators, airlines and energy – have been able to issue debt.

After recording decade highs in March, credit spreads – the premium investors demand to hold riskier corporate bonds over safer Treasuries – have narrowed in both high-yield and investment-grade issues, as measured by the ICE/BofA indexes tracking those markets. While those spreads have not returned to pre-pandemic levels, investors argue that the Fed does not need to up its intervention.

“If they buy aggressively right now they would no longer merely be guarding liquidity but rather chasing spreads tighter. That’s beyond what their mandate should be,” said Tom Graff, head of fixed income at Brown Advisory.

Significant bond buying, particularly in the riskiest corners of the market also runs the risk of creating so-called corporate zombies – deeply indebted companies with dysfunctional business models that in a normal market would default.

Powell on Wednesday acknowledged the limitations to the central bank’s backstops, saying that a Fed loan can help bolster liquidity – or a company’s access to cash – in the short term, but an extended crisis may mean that corporate liquidity problems become solvency problems, meaning companies may be unable to pay off long-term debt.

Gaurav Saroliya, director of macro strategy at Oxford Economics, wrote in a research note that it “would be a mistake to think that the U.S. corporate sector is out of the woods,” and that if the pandemic “leads to long-term shifts in consumer behaviour, then business models that drove profitability before the crisis may well become unprofitable and consequently unviable.”

Indeed, credit agency S&P Global predicts the default rate for speculative-grade companies will increase to 10% in the next year, from 3.1% at the end of 2019.

“The Fed can’t cure fundamentals. It cannot fix high corporate leverage, credit impairment, flawed business models and changing consumer preferences,” said Alexandra Wilson-Elizondo, senior credit portfolio manager at MacKay Shields.

Source: REUTERS
Tags: Federal Reserve
Share3Tweet2
ADVERTISEMENT
FWNews

FWNews

Track the pulse of the market

Related Posts

Investors spooked by strong US data
Fundamental analysis

Investors spooked by strong US data

December 23, 2022 11:55
11
Risk sentiment keeps deteriorating, dollar climbs
Fundamental analysis

Stocks celebrate US inflation, dollar slumps

November 11, 2022 03:07
17
Markets shrug off rising US inflation
Fundamental analysis

Global markets pressured by Fed’s hawkishness

November 3, 2022 03:41
21
Dollar lacks upside momentum due to lower Treasury yields
Technical analysis

Currencies little changed ahead of FOMC announcement

November 2, 2022 03:05
18
Dollar lacks upside momentum due to lower Treasury yields
Technical analysis

Dollar trades sideways to start the week

October 31, 2022 03:50
19
Yellen failed to spook global markets
Fundamental analysis

Rate hike fears continue to dominate global markets

October 20, 2022 03:18
19

Leave Your Opinion Cancel reply

Your email address will not be published. Required fields are marked *

Recommended

Here are some money moves to make while the Fed keeps rates near zero

June 16, 2021 14:45
10
Russian ruble licks wounds at all-time lows

Dollar gives up gains as short-term bulls stampede

September 12, 2022 07:50
23
Risk sentiment keeps deteriorating, dollar climbs

Stocks celebrate US inflation, dollar slumps

November 11, 2022 03:07
17

Ads

Shneider Electric

Most Popular

A slow start to the week in FX markets
Technical analysis

Dollar regains ground to start the week

January 25, 2021 07:25
118
A slow start to the week in FX markets
Technical analysis

Greenback advances modestly amid strong data

May 28, 2021 07:38
110
Kim Jong Un reportedly says his nuclear weapons guarantee there will be no more war
News

Kim Jong Un reportedly says his nuclear weapons guarantee there will be no more war

July 28, 2020 08:29
95
FWNews

Copyright © 2022 FWNews

  • Terms & Сonditions
  • Contact
No Result
View All Result
  • FUNDAMENTALS
  • TECHNICALS
  • Interest Rates
  • Economic calendar
  • Backstage

Copyright © 2022 FWNews