Industry Updates

Federal Reserve to start ETF purchases in ‘early May’

Tom Eckett

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The Federal Reserve has said it will begin purchasing corporate bond ETFs at some point in early May.

The New York Fed announced on 4 May plans to begin purchasing eligible ETFs through the Secondary Market Corporate Credit Facility (SMCCF).

“More information on the corporate credit facilities is forthcoming, including specific start dates of the facilities,” the Fed said in a statement.

BlackRock will be responsible for executing the ETF purchases on behalf of the Fed, similar to the role it played during the Global Financial Crisis (GFC).

The world’s largest asset manager has said it will rebate any fees it receives from any ETF investment made on the Fed programme.

This is the first time in history the Fed will purchase ETFs and comes amid fears over the long-term impact of coronavirus.

As part of its “unlimited” quantitative easing programme, the US central bank will be able to purchase debt that has been recently downgraded to junk status.

Fed’s decision to buy ETFs throws up questions for the industry

The quick response by the Fed has gone some way in calming markets. Highlighting this, investors have piled back into riskier parts of the bond market.

High yield ETFs saw $5.2bn inflows in the US last month, the highest monthly inflows since 2015, as investors looked to front-run the Fed’s purchases.

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