WASHINGTON (AP) – The Federal Reserve released a list of about 750 companies, including Apple, Walmart and ExxonMobil, on Sunday, which it will buy corporate bonds in the coming months to keep borrowing costs low and to smooth the flow of credit.
The central bank also said it has so far bought nearly $ 429 million in corporate bonds from 86 of these companies, including AT&T, Walgreen’s, Microsoft, Pfizer and Marathon Petroleum.
The Fed announced in March that it would buy corporate bonds for the first time in its history as the escalating viral epidemic prompted panicked investors to dump most types of securities in a hurry to hold cash. This has pushed up a range of interest rates and made it almost impossible for businesses to borrow more by issuing new bonds.
However, once the Fed announced its intention to buy up to $ 750 billion in corporate debt, investors started buying bonds again, and eventually big companies started issuing large amounts of new obligations. Recent economic research has found that the simple announcement of the program has helped the Fed build confidence in corporate bonds and improve market efficiency.
Fed Chairman Jerome Powell said that by ensuring that big companies can borrow more, the Fed is trying to stop these companies from laying off workers. But companies are not required to keep all of their employees.
At a hearing last week, Senator Pat Toomey, R-Pa., Asked Powell if purchases were still necessary, as the corporate bond market has largely recovered. Powell said the Fed should keep its promises.
To avoid criticism that it could favor a specific industry, the Fed said two weeks ago that it would seek to emulate a broad approach to market indexes and buy bonds from a wide range of companies. Consumer products companies, such as Quaker Oats and the Brown-Forman still, which make Jack Daniel’s and Woodford Reserve whiskeys, account for about a third of the index. This sector is followed by public services at 10% and energy companies at more than 9%. The index also includes insurance companies but not banks.
The Fed will only buy highly rated debt securities from companies in good financial health or from those that were rated well before the pandemic broke out. The Fed is legally prevented from lending to insolvent businesses. He said he would report on his purchases every 30 days.
The Fed announced on Sunday that it had made its first bond purchases from 86 companies last week. These companies include Nike, broadcaster Fox Corp., Paypal, Target, Campbell Soup, and chip maker Broadcom.
The central bank also buys bond pools in exchange-traded funds, which work similarly to mutual funds. The Fed currently holds $ 6.8 billion in bond ETFs.
The Treasury Department has provided $ 75 billion in taxpayer dollars to support losses from bond purchases. To date, Fed purchases have been modest compared to the program’s announced $ 750 billion cap.
By way of comparison, since March, it has bought more than $ 2 trillion in treasury bills and mortgage-backed securities to pump liquidity into the short-term loan markets.