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QE begins to slow – Federal Reserve unveils closure of corporate bond purchases – Economics Bitcoin News

On Wednesday, the US Federal Reserve announced it would discontinue the purchase of its corporate bonds and the sale of part of its portfolio. The central bank plans to start with exchange-traded funds and then move to bonds as the Fed insists that “sales will be gradual and orderly.”

Federal Reserve begins to open QE

All eyes have been on the US central bank in recent days as the Federal Reserve begins to ease quantitative easing (QE) strategy. This is attractive to viewers as an estimated 24%-30% of all USD created so far was added by central banks to the M1 monetary system in 2020 and 2021. In addition, the Fed recently told the press at the Federal Open Market Committee (FOMC). ) meetings that it will take some time to narrow down the discussions.

QE begins to slow - Federal Reserve unveils closure of corporate bond purchases
Fed Chair Jerome Powell has not discussed the recent slowdown toward QE because he said the Fed was not even ready to hold talks about easing QE.

The central bank followed up on these statements by diverting liquidity from the market through reverse repo. As the unwinding began, the Fed’s reverse repo increased, taking hundreds of billions of dollars off the market. Now the Fed plans to open up corporate bond purchases and explained that it will start with exchange-traded funds. The Fed will follow bond sales, so the sale will not negatively affect the market.

“The selling will be gradual and orderly, and aims to reduce the likelihood of any adverse impact on market functioning, taking into account daily liquidity and trading conditions for exchange-traded funds and corporate bonds,” the central bank noted on Wednesday. have to reduce.”

Mortgage-backed securities not mentioned in Fed’s portfolio sale announcement

The announcement was made by the Secondary Market Corporate Credit Facility (SMCCF), which handles emergency bond actions for the Fed. Several other emergency monetary easing facilities have come to an end after they were created to deal with the economic crisis triggered by COVID-19.

The US central bank has not mentioned mortgage-backed securities (MBS) and has not noted any taping of MBS purchases to date. Data over the past year suggests that the Fed’s MBS operations and a new flock of Wall Street investors are behind growth in the US real estate market.

The SMCCF also noted that the facility would leverage Treasury equity at 10 to 1 when issuing issuers’ corporate bonds, and 7 to 1 when issuing issuers’ corporate bonds rated below investment grade. The SMCCF announcement details will have a higher grade of risk, and the sale will be effective July 28.

What do you think about the Fed discontinuing corporate bond purchases? Let us know what you think about this topic in the comment section below.

Tags in this story

Corporate Bonds, COVID-19, Economics, Economy, ETF Sales, Fed, Fed Chair, Jerome Powell, Markets, MBS, Monetary Easing, Mortgage-Backed Securities, QE, Quantitative Easing, Reverse Repo, Selling Bonds

image credit: Shutterstock, Pixabay, WikiCommons

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