How is the Feds tapering of its corporate debt purchases going?
The Federal Reserve hit reverse gear this month on a crucial element of its pandemic-era response to the COVID crisis, so far without much of a hitch. Last year, the Fed accumulated about $14 billion worth of assets in the U.S corporate debt market, its first foray ever into a booming corner that finances most big American businesses. And now, also for the first time, the central bank has begun shedding its corporate debt holdings, a tiny step as it starts rolling back a part of its emergency kitchen-sink response to the pandemic. The central bank began selling corporate-debt exchange-traded fund holdings on June 8, shedding about $2 billion by the start of this week, according to this Goldman Sachs tally. Not much. The iShares iBoxx $ Investment Grade Corporate Bond ETF LQD, -0.39% was poised for a 0.8% weekly loss Friday, according to FactSet, while the funds riskier junk rated, or high-yield, ETF counterparts were both headed for weekly gains. The iShares iBoxx $ High Yield Corporate Bond ETF HYG, +0.07% and SPDR Bloomberg Barclays High Yield Bond ETF JNK, +0.05% both were on pace to add 0.5% for the week. The tapering comes as investors poured some $1.2 billion into U.S. high-yield funds for the week, a reversal, after a near $1.2 billion weekly outflow, according to BofA Global. Inflows into investment-grade funds totaled $2.4 billion, a drop from $5.9 billion the week before. The orderly selling of the Feds minuscule corporate holdings was always likely to be a non-event, in our view, wrote Lotfi Karouis credit research team at Goldman, in a weekly note. The team, echoing a popular market view, said the Feds power lies with its signal, not the flow of purchases, a force that will continue to cast a long shadow well after the unwinding of the portfolio is complete.  See: Fed needs to say it will no longer buy corporate bonds to break feedback loop, says this fixed-income CIO  The Feds historic corporate debt buying program, while using only a fraction of its more than $750 billion total firepower, has been credited with keeping credit flowing to U.S. corporations when they needed it most. Its corporate holdings, beyond ETFs such as the Vanguard Short-Term Corporate Bond ETF VCSH, -0.04% , included highly rated company bonds from: Apple Inc. AAPL, -0.29% , 3M Co. MMM, +0.65% and Amazon.com Inc. AMZN, -1.37% , per Fed data as of June 11. The central bank also scooped up riskier debt, including bonds issued by APA Corp., formerly Apache Corp. APA, -0.36% which along with other energy companies totaled 9.1% of its holdings as of mid-June. The Fed also had Ford Motor Co. F, +0.03% bonds in its portfolio. The formerly investment-grade companys credit ratings were cut to junk status, in the early days of the pandemic. Read: How the Feds historic leap into buying corporate debt is working even before the purchases formally start. Ford and other auto makers, first grappling with factory shutdowns early in the pandemic, this year have struggled with micro chip shortages and other supply-chain bottlenecks tied to the global reopening, but demand also has been running high for new fleets of electric cars and vehicles. Shares of Ford on Friday were poised for a 74% gain so far this year, versus the S&P 500s SPX, +0.35% near 14% gain and Dows DJIA, +0.74% s 12.5% advance midway through 2021. More broadly, the Fed is expected later this year to begin laying out a potential timeline for its tapering of its much bigger $120 billion-a-month bond buying program of Treasury TMUBMUSD10Y, 1.539% and agency mortgage bonds. Read: Key Fed strategist dodges questions on possible timing of taper