Fed Manipulating Corporate Bond Market

Central bank's corporate bond buying-spree created artificial demand for corporate debt

Image Credits: Spencer Platt / Staff / Getty.

Earlier this month, the Federal Reserve announced it would begin buying individual corporate bonds. Now we have our first glimpse at what that means in practice.

On Saturday, the Fed released a disclosure statement that lists the bonds purchased by the central bank.

The amount so far is relatively modest $428 million. Junk bonds made up $15.5 million of that total.

So far, the Fed has engaged in its intervention into the corporate bond market primarily through the purchase of corporate ETFs. The central bank holds a total of $6.8 billion in bond ETFs as of June 19. That was up from $1.5 billion a month ago.

The Federal Reserve purchases corporate debt via the so-called Secondary Market Corporate Credit Facility (SMCCF). The US Treasury gave the Fed $25 billion for SMCCF as part of the CARES Act. The central bank can leverage that 10-to-1 to buy up to $250 billion in corporate paper. The Fed will create the additional $225 billion out of thin air.

The SMCCF bought bonds from 84 companies. WolfStreet summarized the portfolio this way.

“The bonds that the Fed purchased were issued by 84 companies, in industries ranging from tobacco to video games, across the spectrum of US companies, and US subsidiaries of foreign companies (such as Toyota’s US finance subsidiary). The issuers include several of Warren Buffett’s companies, all kinds of energy companies, and some junk-rated companies, such as Ford.”

According to WolfStreet’s analysis, the average bond maturity in the Fed’s portfolio comes in at 3.3 years. Maturities range from 11 months (a Chevron bond that matures in May 2021) to five years (a Honeywell bond that matures in June 2025). So far, the Fed is not holding any bonds with long-dated maturities.

AT&T topped the list. The Fed has purchased $16.5 million in that company’s debt.

One has to wonder how the Fed chooses the bonds it buys. Regardless of the criteria, the central bank is ultimately picking winners and losers. For instance, the Fed bought Southwest Airlines bonds, but you won’t find any on the list from American Airlines, Delta, or United.

Following is a list of bond purchases by the Fed along with maturity rates and total amounts compiled by WolfStreet.

1 AT&T INC 07/15/2021 16,476,295
2 UNITEDHEALTH GROUP 07/15/2022 16,451,866
3 COMCAST 04/15/2024 13,315,347
4 ANTHEM 05/15/2022 12,937,096
5 IBM 05/13/2022 10,631,583
6 MICROSOFT 02/06/2022 8,855,357
7 WALMART 06/26/2023 8,758,532
8 CONSTELLATION BRANDS 02/15/2023 8,465,435
9 FORD MOTOR COMPANY 04/21/2023 8,051,573
10 CVS HEALTH CORP 03/25/2025 7,762,008
11 BOEING CO 05/01/2023 7,648,613
12 GENERAL ELECTRIC CO 09/07/2022 7,403,280
13 ABBVIE INC 10/01/2022 7,394,460
14 MEDTRONIC INC 03/15/2022 6,658,502
15 COCA-COLA CO 03/25/2025 6,652,748
16 PEPSICO INC 04/30/2025 6,637,973
17 SABINE PASS LIQUEFACTION 03/15/2022 6,512,097
18 MCDONALD’S CORP 01/15/2022 6,488,806
19 BECTON DICKINSON AND CO 06/06/2022 6,342,504
20 PHILIP MORRIS INTL 11/10/2024 6,236,320
21 BERKSHIRE HATHAWAY ENERG 04/15/2025 5,774,200
22 PROLOGIS LP 08/15/2023 5,622,744
23 MARATHON PETROLEUM 05/01/2025 5,543,247
24 GENERAL MILLS 10/17/2023 5,535,298
25 FLORIDA POWER & LIGHT 04/01/2025 5,506,758
26 LOWE’S COS 04/15/2022 5,492,097
27 PFIZER INC 09/15/2023 5,458,757
28 SYSCO CORPORATION 03/15/2025 5,452,704
29 BP CAP MARKETS AMERICA 04/06/2025 5,433,591
30 MASTERCARD 04/01/2024 5,430,832
31 MARRIOTT INTERNATIONAL 05/01/2025 5,416,798
32 GILEAD SCIENCES 09/01/2022 5,331,400
33 EVERSOURCE ENERGY 10/01/2024 5,312,492
34 VISA INC 12/14/2022 5,283,044
35 EXXON MOBIL 08/16/2024 5,211,729
36 WALGREENS BOOTS ALLIANCE 11/18/2021 5,169,408
37 ENERGY TRANSFER OPERATNG 01/15/2024 5,156,184
38 DUPONT DE NEMOURS INC 05/01/2023 5,122,159
39 CHEVRON 05/11/2025 5,113,264
40 TOYOTA MOTOR CREDIT 08/25/2023 5,070,899
41 CATERPILLAR FINL SERVICE 05/13/2022 5,045,104
42 PACCAR FINANCIAL 04/06/2023 4,756,010
43 FOX CORP 01/25/2024 4,509,400
44 HEALTHPEAK PROPERTIES 08/15/2024 4,469,758
45 INTERCONTINENTALEXCHANGE 10/15/2023 4,461,760
46 FISERV INC 10/01/2023 4,412,613
47 DELMARVA PWR & LIGHT CO 11/15/2023 4,383,302
48 VMWARE INC 05/15/2025 4,381,185
49 3M COMPANY 04/15/2025 4,356,304
50 EASTMAN CHEMICAL 08/15/2022 4,238,120
51 GEORGIA POWER CO 07/30/2023 4,208,827
52 HP ENTERPRISE CO 04/01/2023 4,143,570
53 CARGILL INC 07/23/2023 4,078,236
54 HUMANA INC 04/01/2025 4,052,405
55 AUTOZONE INC 04/15/2025 3,376,393
56 DTE ELECTRIC CO 03/01/2025 3,373,695
57 FEDEX CORP 05/15/2025 3,360,613
58 BURLINGTN NORTH SANTA FE 09/01/2024 3,339,810
59 VIRGINIA ELEC & POWER 05/15/2025 3,300,755
60 AVANGRID INC 04/15/2025 3,288,007
61 PROCTER & GAMBLE 03/25/2025 3,266,060
62 PHILLIPS 66 04/01/2022 3,227,510
63 PAYPAL HOLDINGS 10/01/2024 3,201,220
64 UNITED PARCEL SERVICE 04/01/2023 3,174,262
65 HONEYWELL INTERNATIONAL 06/01/2025 3,072,735
66 DIAMONDBACK ENERGY INC 12/01/2024 3,007,643
67 CAMPBELL SOUP CO 03/15/2025 2,847,410
68 REALTY INCOME CORP 08/01/2023 2,799,115
69 CME GROUP INC 03/15/2025 2,785,633
70 FIRSTENERGY CORP 03/15/2023 2,736,443
71 REPUBLIC SERVICES INC 08/15/2024 2,682,653
72 EDISON INTERNATIONAL 11/15/2024 2,651,085
73 HOME DEPOT INC 06/01/2022 2,613,999
74 NUCOR CORP 06/01/2025 2,584,961
75 ARES CAPITAL CORP 06/10/2024 2,562,600
76 GENERAL MOTORS FINL CO 03/20/2023 2,156,573
77 NIKE INC 03/27/2025 2,154,373
78 DOLLAR GENERAL CORP 04/15/2023 2,140,035
79 WILLIAMS COMPANIES INC 03/15/2022 2,103,140
80 SOUTHWEST AIRLINES 05/04/2023 2,102,015
81 PHILLIPS 66 PARTNERS LP 12/15/2024 2,069,484
82 DUKE ENERGY CORP 04/15/2024 1,663,630
83 ACTIVISION BLIZZARD 06/15/2022 1,558,645
84 HYATT HOTELS CORP 04/23/2025 1,090,262

As WolfStreet put it, ” the Fed has been pushing up bond prices and stock prices to bail out asset holders so that they have absolutely no skin in the crisis, and this strategy has widened by a massive amount the already huge wealth disparity between asset holders and labor in the US – and the bigger the asset holders, the more they got from the Fed.”

Nice work if you can get it.

In effect, the Fed’s foray into the corporate bond market will create artificial demand for corporate debt. It will boost bond prices higher than they otherwise would be and hold interest rates down. Ostensibly, the Fed’s tinkering will make it easier for corporations to borrow money.

In simplest terms, the central bank is manipulating the corporate bond market.



Scientists reveal the dark nature of COVID-19.



WATCH ALL SHOWS

AUDIO