© Reuters. FILE PHOTO: The Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 27, 2019. REUTERS/Brendan McDermid/File Photo
By Jonnelle Marte (Reuters) – The Federal Reserve will start to gradually offload its portfolio of exchange-traded funds that invest in corporate bonds on June 7, the first step in unwinding corporate bond holdings acquired during the pandemic, the New York Fed said on Thursday. The Fed will start selling its corporate bond holdings later this summer and will provide additional details before those sales begin. The central bank announced on Wednesday that it would begin to sell the modest corporate bond portfolio it built up last year through an emergency lending program launched to backstop credit markets at the height of the pandemic. The Secondary Market Corporate Credit Facility ultimately saw little use, but Fed officials said establishing it helped to restore market confidence and keep credit flowing to households and businesses. 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. The Fed said the sale of its corporate bond portfolio will be “gradual and orderly,” taking into account daily liquidity and trading conditions. The central bank expects to complete the sale of its corporate bond portfolio by the end of 2021.
The 16 corporate bond ETFs held by the Fed traded modestly lower on Thursday morning following the announcement, down by between 0.1% and 0.35%. A Fed official said on Wednesday that the decision to wind down the corporate credit facility was unrelated to monetary policy. The central bank is separately buying $120 billion a month in government securities to support the economy as part of its monetary policy and will have to decide when to start reducing those purchases.
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