MNI: Fed Plans to Begin Selling Its Corporate Bond Holdings

The Federal Reserve Board on Wednesday announced plans to begin winding down its USD13.8 billion portfolio of corporate bond and ETF purchases made last year after setting up its Secondary Market Corporate Credit Facility to support businesses under the threat of Covid.

Expectations are for the Fed will begin winding down its ETF holdings before beginning to sell individual corporate bonds later this summer. The last time the Fed directly sold assets was with Maiden Lane assets in the early 2010s.

The central bank's entire Secondary Market Corporate Credit Facility portfolio will be off the balance sheet by the end of the year, a Fed official said.

The New York Fed, which manages the operations of the facility, will provide additional details tomorrow morning before market open and before any sales.

The unwinding of the portfolio is unrelated to monetary policy, a Fed official said.

The SMCCF was established with the approval of then-Treasury Secretary Steven Mnuchin and equity was provided by the Treasury Department under the CARES Act passed in March, 2020.

The temporary emergency lending facility closed on December 31st, 2020 after Mnuchin had declined to agree to continue the facility despite Fed Chair Powell indicating support for extending the corporate bond buying program.

"The SMCCF proved vital in restoring market functioning last year, supporting the availability of credit for large employers, and bolstering employment through the COVID-19 pandemic," the Fed said in a statement. "SMCCF portfolio sales will be gradual and orderly, and will aim to minimize the potential for any adverse impact on market functioning by taking into account daily liquidity and trading conditions for exchange traded funds and corporate bonds."