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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
FED
The Fed's announcement Wednesday that it would begin winding down its Secondary Market Corporate Credit Facility (SMCFF) is a symbolic step toward post-pandemic policy normalization, but will have little significant broader market impact.
- The SMCFF (which provided liquidity for outstanding corporate bonds) and its primary market equivPMCCF (which was designed to support new bond and loan issuance but was not used) had been closed to new purchases at end-2020.
- The latest Fed balance sheet report shows $26.0B in holdings, but note that this includes ~$13.7bln in actual assets (~$5.2B of corporate bonds and ~$8.5B of ETFs as of a mid-May filing). The remaining $12.4bln in the balance sheet is accounted for by the equity provided by the US Treasury (a large chunk of which was paid back at end-2020, see chart below).
- The relatively small footprint of the facilities in the market, and the pledge to sell off the portfolio in "gradual and orderly" fashion beginning Jun 7 (NY Fed providing details this morning here), suggest little market impact. The entire portfolio should be off the balance sheet by end-year.
- Likewise, the withdrawal of reserves from the system represented by the $14B or so securities sold to the private sector is unlikely to make much difference to overnight funding rate pressures.
Combined Facilities. Source: Fed, MNI
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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