- Fed reveals plans to buy bonds from 794 companies
- 10% of the index is made up of 6 companies
- $8.7 billion in corporate debt bought as of June 24
Yesterday the U.S. Federal Reserve released a list of nearly 800 companies whose investment-grade (as of March 22) debt it plans to buy on the secondary market in order to support financial markets. The individual bond purchases pumping in liquidity are done through the newly created Secondary Market Corporate Credit Facility (SMCCF), and the borrowers are chosen based on a broad, diversified market index. The constituents will be refreshed periodically to add or remove bonds, and the index will be published once a month.
Below are the 100 biggest constituents based on weighting:
The Fed began this program on June 16, and it's set to expire September 30. It has so far bought individual bonds worth almost $429 million from 86 companies. Consumer sector firms (cyclical and non-cyclical) make up a third of the index.
The list has certainly raised some eyebrows and questions about why the central bank thinks buying bonds from cash-rich companies like Apple or foreign companies like Volkswagen and Toyota is good for the American economy. The Wall Street Journal's Nick Timiraos pointed out that the top six companies – Toyota, Volkswagen, Daimler, AT&T, Apple and Verizon – make up 10% of the index. The Fed's bond-buying, which has led to record issuances this year, has also been blamed for causing a disconnect between the economy and the stock market.
The Fed is also buying corporate bond ETFs as part of this $750 billion emergency lending program to buy corporate debt. As of June 16, it has bought $6.8 billion in corporate bond ETFs. (see below) This includes $1.7 billion worth of iShares iBoxx U.S. Dollar Investment Grade Corporate Bond ETF (LQD). Total corporate debt purchased through the Corporate Credit Facilities was $8.7 billion through June 24.