Federal Reserve Will Begin Buying Corporate Bonds
The Federal Reserve will begin buying “a broad and diversified portfolio of corporate bond”.
Corporate bond purchases will be backed by up to $75 billion by the U.S. Treasury; however, the Federal Reserve will leverage the Treasury Department’s equity at 10 to 1 when acquiring corporate bonds, meaning up to $750 billion is available.
The Fed says this action will help “support market liquidity and the availability of credit for large employers”. Due to “disruptions to economic activity” related to the coronavirus, the need for companies to obtain financing has caused a liquidity squeeze, and the Fed believes this corporate bond purchasing program will allow companies to pay off debt and sustain themselves until economic conditions normalize.