The Federal Reserve embarked on a wave of massive bond buying that included purchases of exchange-traded funds (ETFs) at the height of the pandemic last year. Now the Fed is looking to sell these assets.
“The Federal Reserve will soon start selling corporate bonds and exchange-traded funds he amassed last year thanks to an emergency loan vehicle set up to contain the economic fallout from the Covid-19 pandemic ”, a Wall Street Journal article noted.
The vehicle, known as the Secondary Market Business Credit Facility, or SMCCF, held $ 5.21 billion in bonds from companies such as Whirlpool Corp., Walmart Inc. and Visa Inc. at 30 April, “according to a WSJ article. “In addition, he held $ 8.56 billion in exchange-traded funds that hold corporate debt securities, such as the Vanguard Short-Term Corporate Bond ETF.”
Last year, the SMCCF was created in March 2020 to support the debt market as stocks hit a sell-off amid pandemic fear. It turned out to be a wise move.
“The SMCCF has proven to be essential in restoring the functioning of the market last year, supporting the availability of credit for large employers and strengthening employment during the Covid-19 pandemic,” the Fed said in a statement on Wednesday. .
Pick up what the Fed left behind?
Investors have the option of recovering old funds from the Fed. A few funds worth considering include two Vanguard ETFs.
The Vanguard Interim-Term Corporate Bond ETF (VCIT) was mentioned as one of the funds bought by the Fed in 2020, and is ideal for investors willing to take more duration risk. VCIT seeks to track the performance of a market-weighted corporate bond index with a medium-term dollar-weighted average maturity.
The fund uses an index investment approach designed to track the performance of the Bloomberg Barclays US 5-10 Year Corporate Bond Index. This index includes taxable securities denominated in US dollars, investment grade, fixed rate, issued by industrial, utilities and financial companies, with maturities between 5 and 10 years.
Investors wishing to limit their duration on corporate bonds can opt for the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH). VCSH seeks to track the performance of a market-weighted corporate bond index with a short-term dollar-weighted average maturity, and also uses an index investing approach designed to track the performance of the Bloomberg Barclays Index. US 1-5 Year Corporate Bond Index.
For more news, information and strategy, visit the website Fixed income channel.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.