August 17, 2020 — Fed Reduces Bond Buybacks as Market Stabilizes


The Fed has halved its corporate bond spending as the markets have stabilized to levels close to pre-pandemic pricing.  The daily rate of purchases has slowed to $12 million daily, from $24 million per day a week ago, and $300 million in the early days.  Last week, the Fed purchased $61 million in bonds and no ETFs; ETF purchases were stopped July 23.

The Secondary Market Corporate Credit Facility (SMCCF) was created to help stabilize the credit markets.  If stability returned, the SMCCF would slow the pace of purchases or even stop buying altogether.  The SMCCF is set to stop purchasing bonds and ETFs after September 30, unless the Fed extends its mandate.

Some additional bright spots were seen last week in the government data releases.  First time unemployment claims last week fell below 1 million, for the first time since the virus hit. Total claims for last week came in at 936,000, well below estimates of 1.1 million, and continuing claims were down 600,000.  Retail spending was up for the third month in a row, albeit at a reduced level of 1.2 percent.  Another report showed worker productivity rose at its fastest pace in 11 years, up 7.3 percent annualized for Q2, well ahead of the 1.5 percent Reuters estimate, and the third straight monthly increase.