Author Topic: FED Buying  (Read 2895 times)

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 2949
Re: FED Buying
« Reply #50 on: June 16, 2020, 12:44:33 AM »
https://www.cnbc.com/2020/06/15/the-fed-says-it-is-going-to-start-buying-individual-corporate-bonds.html
"The Federal Reserve is expanding its foray into corporate credit to now buy individual corporate bonds" ... Not sure what the intended frequency of these purchases will be, I didn't see that mentioned in the article.
The Fed announcing it would buy corporate bond ETFs settled markets and allowed some companies to offer junk bonds that otherwise might not have found buyers.  The trick is, the Fed wasn't buying it - it just announced the capability.  There was a month or so delay before it actually bought corporate bond ETFs, for example.

In my view, the Fed's willingness to take action is key.  In this case, the Fed is saying it will become the buyer of last resort for corporate bonds.  That means an investor who finds the bonds too risky before the announcement might take a second look.  And they could conclude even if the bond is risky, they can sell it later to the Fed.  I view the Fed's announcement as key, even before it acts.

DalioGold10

  • 5 O'Clock Shadow
  • *
  • Posts: 43
Re: FED Buying
« Reply #51 on: June 16, 2020, 02:29:11 AM »
https://www.cnbc.com/2020/06/15/the-fed-says-it-is-going-to-start-buying-individual-corporate-bonds.html
"The Federal Reserve is expanding its foray into corporate credit to now buy individual corporate bonds" ... Not sure what the intended frequency of these purchases will be, I didn't see that mentioned in the article.
The Fed announcing it would buy corporate bond ETFs settled markets and allowed some companies to offer junk bonds that otherwise might not have found buyers.  The trick is, the Fed wasn't buying it - it just announced the capability.  There was a month or so delay before it actually bought corporate bond ETFs, for example.

In my view, the Fed's willingness to take action is key.  In this case, the Fed is saying it will become the buyer of last resort for corporate bonds.  That means an investor who finds the bonds too risky before the announcement might take a second look.  And they could conclude even if the bond is risky, they can sell it later to the Fed.  I view the Fed's announcement as key, even before it acts.

I agree with your view,i.e. central banks are firstly a big PR corporation.
In theory, basically, the default risk is narrowed or transferred to FED. All the Moody's credit ratings become less relevant since you know FED will step in to refinance/roll-over the corporate debt when due or when need it.
All these lead to further distortions in the natural functioning of the financial markets.
« Last Edit: June 16, 2020, 04:41:02 AM by DalioGold10 »

Buffaloski Boris

  • Handlebar Stache
  • *****
  • Posts: 2080
  • There’s a voter born every minute.
Re: FED Buying
« Reply #52 on: June 16, 2020, 05:38:28 AM »
https://www.cnbc.com/2020/06/15/the-fed-says-it-is-going-to-start-buying-individual-corporate-bonds.html
"The Federal Reserve is expanding its foray into corporate credit to now buy individual corporate bonds" ... Not sure what the intended frequency of these purchases will be, I didn't see that mentioned in the article.
The Fed announcing it would buy corporate bond ETFs settled markets and allowed some companies to offer junk bonds that otherwise might not have found buyers.  The trick is, the Fed wasn't buying it - it just announced the capability.  There was a month or so delay before it actually bought corporate bond ETFs, for example.

In my view, the Fed's willingness to take action is key.  In this case, the Fed is saying it will become the buyer of last resort for corporate bonds.  That means an investor who finds the bonds too risky before the announcement might take a second look.  And they could conclude even if the bond is risky, they can sell it later to the Fed.  I view the Fed's announcement as key, even before it acts.

I agree with your view,i.e. central banks are firstly a big PR corporation.
In theory, basically, the default risk is narrowed or transferred to FED. All the Moody's credit ratings become less relevant since you know FED will step in to refinance/roll-over the corporate debt when due or when need it.
All these lead to further distortions in the natural functioning of the financial markets.

TANSTAAFL. Been watching the dollar of late?   

DalioGold10

  • 5 O'Clock Shadow
  • *
  • Posts: 43
Re: FED Buying
« Reply #53 on: June 16, 2020, 05:59:57 AM »
https://www.cnbc.com/2020/06/15/the-fed-says-it-is-going-to-start-buying-individual-corporate-bonds.html
"The Federal Reserve is expanding its foray into corporate credit to now buy individual corporate bonds" ... Not sure what the intended frequency of these purchases will be, I didn't see that mentioned in the article.
The Fed announcing it would buy corporate bond ETFs settled markets and allowed some companies to offer junk bonds that otherwise might not have found buyers.  The trick is, the Fed wasn't buying it - it just announced the capability.  There was a month or so delay before it actually bought corporate bond ETFs, for example.

In my view, the Fed's willingness to take action is key.  In this case, the Fed is saying it will become the buyer of last resort for corporate bonds.  That means an investor who finds the bonds too risky before the announcement might take a second look.  And they could conclude even if the bond is risky, they can sell it later to the Fed.  I view the Fed's announcement as key, even before it acts.

I agree with your view,i.e. central banks are firstly a big PR corporation.
In theory, basically, the default risk is narrowed or transferred to FED. All the Moody's credit ratings become less relevant since you know FED will step in to refinance/roll-over the corporate debt when due or when need it.
All these lead to further distortions in the natural functioning of the financial markets.

TANSTAAFL. Been watching the dollar of late?

That was the natural move: USD is weakening.
Actually for US and Trump reelection, this is a smart move in order to stimulate exports and restart the economy. On the flip side, your financial investments in dollar based vehicles will lose.
Unfortunately the currencies game is also a relative game, i.e. as long as other economies (see Europe, Japan etc.) lower rates their currencies are weakening too. It seems a never ending loop of causes and effects.

Gold should stay up or increase over the next decade, so adding gold and gold producers in a portfolio seems a smart move :))

celerystalks

  • Stubble
  • **
  • Posts: 145
Re: FED Buying
« Reply #54 on: June 16, 2020, 07:04:34 AM »
I question what happens after the Fed goes on a corporate bond buying binge, and then the bond issuers file for Ch. 11 bankruptcy protection.  Ordinarily, the equity interest holders are wiped out. And, the bond holders become the new equity holders through the reorganization and recapitalization process of Ch. 11. Does this mean that the Fed will end up being significant equity holders of corporations if this crisis drags on and businesses default on their loans?


MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 2949
Re: FED Buying
« Reply #55 on: June 16, 2020, 07:14:25 AM »
I agree with your view,i.e. central banks are firstly a big PR corporation.
That's a hilarious summary of the Fed!  Quite apt.

Some of the market moves do happen once the Fed begins acting.  Take yesterday, when markets reacted well to the Fed mentioning it was about to buy corporate bonds.  That wasn't new information, but it may have been reassuring to hear it repeated.  Maybe they'll make a catchy song or ad about it...  (They're also buying junk bonds)

"Who's got junk in their trunk?   The Fed, the Fed!"