> Its Secondary Market facility may purchase U.S.-listed ETFs. While the preponderance of those holdings will be those primarily focused on U.S. investment-grade corporate bonds, the remainder will be in ETFs whose primary investment objective is exposure to U.S. high-yield corporate bonds.
In other words, the Fed is buying junk bonds through ETF. There's one more stage to go: buying equity ETFs, like the Bank of Japan has been doing for years.
>There's one more stage to go: buying equity ETFs, like the Bank of Japan has been doing for years.
People keep saying this, but what is the chain of logic for the fed getting into equities? They aren't in freefall. They've been rallying for the last two weeks.
The global dollar short squeeze [1], if left to unfold, will drive the dollar to highs that will paralyze the US and world economy. The Fed will combat this problem through aggressive devaluation. This devaluation will take the form of moving privately-held assets onto its balance sheet through purchases.
Taken far enough, this program will leave the Fed without Treasuries to buy. To diversify the flow of assets onto the balance sheet, ever riskier assets will be purchased. Today it's junk bonds. Tomorrow it could be stocks.
There's no justification for it, people are just speculating. The BoJ buys equities because of long-term structural issues with the Japanese economy (e.g. low birthrate, low immigration, aging population) that cause deflationary pressures in all asset classes. The current situation in the US is nothing of the sort.
This is factually incorrect... I cannot believe that I'm actually making use of my polisci double major but your understanding of the word is missing YUGE parts of economic history such as: https://en.wikipedia.org/wiki/Lost_Decade_(Japan)
The market isn't rallying because investors are becoming optimistic about the prospects of the real economy. The real economy is going to be a disaster, because we have no roadmap for leaving lockdown anytime soon.
It's rallying because all sorts of zombie businesses can now stay alive, thanks to the government lending them unlimited amounts of money.
All this does is it kicks the can down the road for a year.
If we're going to be back to normal in a year, and if stock prices were not overvalued a month ago, then prices now are too low, and it's a great time to buy.
The market tends to want to test assumptions it seems to me. I would not be overly surprised to see the market act in a fashion to have this question if the Fed will backstop it answered.
The Fed frequently plays the role of buyer/lender of last resort. Some of it is signaling to help prop up the market and the Fed hopes to sell later at a profit.
In other words, the Fed is buying junk bonds through ETF. There's one more stage to go: buying equity ETFs, like the Bank of Japan has been doing for years.