Fed Actions May Benefit Investment Grade Bond ETFs


On Monday. March 23rd the Federal Reserve announced the expansion of asset purchasing programs with the creation of two facilities. The first is the Primary [Market] Corporate Credit Facility otherwise known as PMCCF is designed to purchase new bonds from companies that are looking to issue debt in the coming future. The second one is also known as a Secondary Market Corporate Credit Facility, otherwise known as SMCCF, will actually purchase existing corporate bonds that are in the marketplace and trade over the counter, as well as, for the first time ever, exchange-traded funds.

Now this is unprecedented, as the Japanese government, as many of you may know owns close to 80% of all the ETF assets in that country, but what's interesting here is that the Federal Reserve decided not to purchase anything but investment grade ETFs, and they limited themselves to 20% of any ETF outstanding, as well as to 20% of ETF issuers.

So what does this mean for investors? Well you may have noticed already that the investment grade ETFs have moved quite rapidly up in price, and with that have dissolved a lot of these discounts that they’re trading at to their net asset value. So, overall it’s going to be an interesting time to see how they evolve this program to maybe potentially get into any other platforms as well. So, in this rapidly changing environment, we look to be getting back to you as soon as we can with more timely updates. Thanks.

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