The Federal Reserve’s two corporate bond-buying programs will be up and running soon, the central bank said on Monday, getting closer to kicking off a never-before-tried effort to ensure companies can raise cash amid the economic damage from the coronavirus.
The Federal Reserve Bank of New York said that its program to buy already-issued corporate bonds will start to buy eligible exchange traded funds, which hold bundles of company debt but trade like stocks, “in early May.” The Fed’s purchases of existing and newly issued debt are expected to start “soon thereafter.”
The central bank first announced on March 23 that it would buy company debt, then said on April 9 that it would ramp up the size and scope of the anticipated program. It plans to buy up to $500 billion in bonds on the primary market and $250 billion on the secondary market, backed by $75 billion in Treasury Department funding to insure against potential credit losses.
The mere anticipation of the Fed programs has helped to unstick corporate credit, which had ground to a halt amid shutdowns and financial market tumult. Companies have been successfully issuing bonds in the weeks since the central bank’s announcements.
“Companies are out there financing, they’re out there raising liquidity,” Jerome H. Powell, the Fed chair, said at a news conference last week. “We have to follow through, though. And we will follow through to validate that announcement effect.”