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New York Fed's Bond Market Stabilizer Fund Makes Its Data Debut

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A new fund that’s supposed to help the Federal Reserve System keep the U.S. corporate bond markets moving has started showing up in Fed data releases.

The new fund, the Corporate Credit Facility LLC, had $305 million in net portfolio holdings Wednesday, and an average of $44 million in net portfolio holdings per day, according to the Fed.

Resources

  • Links to the H.4.1 releases are available here.
  • An article about the Secondary Market Corporate Credit Facility coming to life is available here.

U.S. life insurers hold about $2.8 billion in corporate bonds from issuers with high credit ratings, in part because high-grade corporate bonds are usually easy to sell.

Figures collected by the Federal Reserve Bank of New York — which is part of the Federal Reserve System — show that, in late March, the COVID-19-related turmoil was starting to cause the corporate bond market to lock up. Holders of high-grade bonds were having trouble getting cash for their bonds.

The New York Fed said it organize one credit facility, the Primary Market Corporate Credit Facility (PMCCF), to buy bonds in the “primary market” — from companies that are borrowing money from investors by issuing bonds.

The New York Fed also said it would organize second facility, the Secondary Market Corporate Credit Facility (SMCCF), to buy bonds that already have owners through the “secondary market.”

If a life insurer wanted to sell its bond holdings, it would sell the bond holdings through a secondary market transaction. That means that the SMCCF could, eventually, buy bonds from life insurers. In theory, by making bond purchases when other market players are too broke or too scared to make deals, the SMCCF could also make it easier for life insurers to sell their bonds to market players oher than the SMCCF, by increasing the other market players’ confidence in the bond market.

The New York Fed announced a few weeks ago that it would be putting $75 billion into the bond buying fund, and hiring BlackRock, a large asset manager, to manage the dealmaking.  The New York Fed announced Monday that it had put the first $37.5 billion into the fund, and that CCF would start by buying exchange-traded bond funds.

Here are some details that came out in the Federal Reserve Board’s H.4.1 release:

Structure: The New York Fed is using Corporate Credit Facility LLC as the holding company for the PMCCF and SMCCF efforts.

Wording: The Fed is putting the article “the” before CCF. It refers frequently to “the Corporate Credit Facility LLC” and “the CCF.”

Organizational chart The New York Fed is the managing member of the CCF LLC limited partnership.

Treasury investment: The Fed is combining the book value of the U.S. Treasury Department’s equity investments in Corporate Credit Facility LLC and another new credit market rescue fund, Commercial Paper Funding Facility II LLC, in a ”Treasury contribution to credit facilities” line in the H.4.1 release. That line shows the two credit market rescue funds have received $47.5 billion in Treasury contributions.

— Read How Fed Intervention Has Saved, but Distorted, the Bond Marketon ThinkAdvisor.

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