On Wednesday, the US Federal Reserve announced it would discontinue the purchase of its corporate bonds and the sale of part of its portfolio. The central bank plans to start with exchange-traded funds and then move to bonds as the Fed insists that “sales will be gradual and orderly.”
Federal Reserve begins to open QE
All eyes have been on the US central bank in recent days as the Federal Reserve begins to ease quantitative easing (QE) strategy. it is attractive to the audience because a an estimate 24%-30% of all USD created so far couple for the M1 monetary system by the central bank in 2020 and 2021. In addition, the Fed told the press at recent Federal Open Market Committee (FOMC) meetings that taping discussions will take some time to begin.
The central bank followed up on these statements by removing liquidity from the market. reverse repo. Fed’s reverse repo as soon as unwinding begins IncreasedWithdrawal of hundreds of billions of dollars from the market. Now the Fed plans to open up corporate bond purchases and it Explained It will start with exchange traded funds. The Fed will follow bond sales, so the sale will not negatively affect the market.
“The selling will be gradual and orderly, and aims to reduce the likelihood of any adverse impact on market functioning, taking into account daily liquidity and trading conditions for exchange-traded funds and corporate bonds,” the central bank noted on Wednesday. have to reduce.”
Mortgage-backed securities not mentioned in Fed’s portfolio sale announcement
The announcement was made by the Secondary Market Corporate Credit Facility (SMCCF), which handles emergency bond actions for the Fed. Several other emergency monetary easing facilities have come to an end after they were created to deal with the economic crisis triggered by COVID-19.
The US central bank has not mentioned mortgage-backed securities (MBS) and has not noted any taping of MBS purchases to date. data tells Over the past year the Fed’s MBS operations and a new flock of Wall Street investors are behind the bloated US real estate market.
The SMCCF also noted that the facility would leverage Treasury equity at 10 to 1 when issuing issuers’ corporate bonds, and 7 to 1 when issuing issuers’ corporate bonds rated below investment grade. The SMCCF announcement details will have a higher grade of risk, and the sale will be effective July 28.
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