Jun 2 (Reuters) – The Federal Reserve will begin to undo corporate bonds it acquired last year through an emergency credit line launched to calm credit markets at the height of the pandemic, the central bank announced on Wednesday.
The Fed said that the sale of its holdings in the Secondary Market Corporate Credit Facility (SMCCF), which includes bonds of companies bought in the secondary market and exchange-traded funds that invest in corporate debt, will be “gradual and orderly”.
The central bank will seek to minimize the possible effect on the markets, considering the daily liquidity and trading conditions of exchange-traded funds and corporate bonds, it said in a statement. The New York Fed, which manages the line, will provide more details on the sales on Thursday.
The Fed announced two corporate credit lines in March 2020, at the height of market turmoil as the pandemic in the United States progressed. Although little used in the end, in fact the primary credit line was never used, Fed officials have said they were successful in signaling to markets that it was poised to support corporate credit markets.
“The SMCCF was vital in restoring market operation last year, supporting the availability of credit for large employers, and supporting employment through the COVID-19 pandemic,” the Fed said.
The line culminated on Dec. 31 after former Treasury Secretary Steven Mnuchin asked the Fed to close many of its emergency loan programs and return unspent funds.
As of April 30, it had loans worth $ 13.8 billion, including about $ 8.6 billion of corporate debt holdings from exchange-traded funds and $ 5.2 billion of corporate bonds, according to Fed data.
(Report by Jonnelle Marte and Howard Schneider, Edited in Spanish by Manuel Farías)