How does the Federal Reserve influence financial markets?
Exhibit No. 3223: Buying bonds.
Thanks to the Fed’s aggressive bond-buying campaign – government and corporate – a record $170 billion flooded into bond exchange-traded funds (ETFs) year-to-date. This is up from $154 billion in all of 2019.
Following the steep coronavirus-induced selloff that spawned a liquidity crunch earlier this year, the Fed intervened and announced it intended to buy corporate debt through secondary markets. This made the central bank an owner of debt from Apple, Microsoft, Ford, Walmart, and many other multi-billion-dollar multinational corporations.
More from Bloomberg:
The Fed has bought 16 different corporate bond ETFs, with purchases peaking in June at $4.2 billion, according to data from Bloomberg Intelligence. Investors anticipating the central bank’s moves added $28 billion to those products.
Two of the funds the Fed bought ended up topping the list of biggest sector gainers this year. BlackRock’s iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) is leading with $17.5 billion, while Vanguard’s Intermediate-Term Corporate Bond ETF (VCIT) has attracted $12.2 billion.
Even some without the Fed backing have seen stellar years. Vanguard’s Total Bond Market ETF (BND) and BlackRock’s iShares Core U.S. Aggregate Bond ETF (AGG) have added $12.1 billion and $8.2 billion, respectively.
Is it time bond investors wrote a thank-you note to Fed Chair Jerome Powell?
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