Fed Reveals ETFs It Purchased in Emergency Lending Program

(Bloomberg) -- The Federal Reserve purchased shares of exchange-traded funds including the iShares iBoxx $ Investment Grade Corporate Bond ETF and the Vanguard Intermediate-Term Corporate Bond ETF in the opening days of its program to support corporate borrowers, according to disclosures published Friday.

The purchases, which began May 12, are part of an emergency program known as the Secondary Market Corporate Credit Facility, and represent one of the Fed’s key efforts to combat the coronavirus pandemic. The disclosures covered purchases made through May 18. The central bank’s total holdings of ETFs invested in corporate debt rose to $2.98 billion as of May 26, according to weekly balance sheet data published Thursday.

Fed Reveals ETFs It Purchased in Emergency Lending Program

The disclosures revealed the Fed’s biggest counterparties in the transactions were Bank of America Securities and Morgan Stanley, followed by Barclays Capital and Goldman Sachs & Co. The central bank also purchased ETF shares from Jefferies, UBS Securities, Citigroup, Wells Fargo Securities, BMO Capital Markets and BNP Paribas Securities.

The majority of the Fed’s purchases were concentrated in investment-grade credit ETFs. The iShares fund, ticker LQD, and the Vanguard fund, ticker VCIT -- the central bank’s top purchases by market value -- have the bulk of their holdings in banks, followed by pharmaceutical companies.

LQD has taken in about $2.9 billion and rallied about 4% since May 12. VCIT has absorbed $1.2 billion over that same period and climbed more than 3%.

High Yield

While the bulk of the Fed’s roughly $1.3 billion in ETF purchases covered in the release went to high-grade funds, the central bank bought roughly $223 million worth of high-yield ETFs. BlackRock’s iShares iBoxx High Yield Corporate Bond ETF -- the biggest junk-bond ETF -- was the most heavily bought among them.

The central bank has retained BlackRock to manage the program’s investments and outlined procedures to avoid conflicts of interest. Of the 15 ETFs it purchased in the period covered by the disclosures, eight were BlackRock products.

©2020 Bloomberg L.P.

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