(Reuters) – The Federal Reserve will begin to unwind the corporate bond holdings it acquired last year through an emergency lending facility launched to calm credit markets at the height of the pandemic, the central bank announced on Wednesday.
The Fed said the sale of its holdings in the Secondary Market Corporate Credit Facility, which includes bonds of companies purchased in the secondary market and exchange-traded funds that invest in corporate bonds, will be “gradual and orderly.”
The central bank will aim to minimize the potential effect on markets by factoring in daily liquidity and trading conditions for exchange-traded funds and corporate bonds, it said in a statement. The New York Fed, which manages the facility, will provide more details about the sales on Thursday.
The Fed announced two corporate credit facilities in March 2020, at the peak of the market turmoil as the pandemic was unfolding in the United States. While little used in the end – the primary credit facility in fact was never used – Fed officials have said they were successful in signaling to markets that the Fed was prepared to provide a backstop to corporate credit markets.
“The SMCCF proved vital in restoring market functioning last year, supporting the availability of credit for large employers, and bolstering employment through the COVID-19 pandemic,” the Fed said.
The facility closed on Dec. 31 after former Treasury Secretary Steven Mnuchin asked the Fed to shut down many of its emergency lending programs and return unused funds. As of April 30, the facility had $13.8 billion of loans outstanding, including about $8.6 billion of corporate bond ETF holdings and $5.2 billion of corporate bonds, according to Fed data.
(Reporting by Jonnelle Marte and Howard Schneider; Editing by Cynthia Osterman)
