It is going to be a day of reckoning should the Federal Reserve ever decide to tighten and taper and remove the training wheels.
It has been an interesting few days on the stock market as investors have seen the volatility comparable to March madness. Well, the Federal Reserve seems spooked by it so it had to make a big announcement.
On late Monday, the Fed confirmed that it would start to purchase individual corporate bonds, in addition to the exchange-trade funds (ETFs). As part of its $750 billion Secondary Market Corporate Facility, the central bank wants to create “a broad, diversified market index of U.S. corporate bonds.”
According to the guidelines listed by the Fed, the Eccles Building would only scoop up corporate debt based on these two factors: remaining maturities of five years or less and ratings of BBB- or Baa3 (depending on the agency) as of March 22.
“This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility’s minimum rating, maximum maturity, and other criteria. This indexing approach will complement the facility’s current purchases of exchange-traded funds,” the Fed said in a statement.”
Unsurprisingly, the leading stock indexes wiped out their huge losses on Monday and turned positive close to the end of the session. The Dow Jones Industrial Average is up about 200 points after being down as much as 600 points.
The only thing left for the Fed is to buy individual stocks. This seems more likely than ever before, especially if there is another massive selloff.
Leave a Comment