The Fed’s $250 Billion Debt-Buying “Index” Loophole

from Zero Hedge

In the aftermath of yesterday’s announcement by the Fed that the central bank is starting to buy corporate bonds (not ETFs), something it had said it would do three months ago yet which either the algos or the Robinhooders never quite grasped and which sent stocks soaring even though it wasn’t actual news, some have asked what exactly was the purpose of the Fed’s market-moving press release. As it turns out, there was a very strategic purspose for the Fed to do what it just did, and it involves around the just announced Broad Market Index, which effectively grants the Fed a $250 billion monetization loophole.

BMO’s Daniel Krieter explains below.

What did the Fed do? Initially, the SMCCF was structured to hold two types of investments, “Eligible Individual Corporate Bonds” and “Eligible ETFs”. Yesterday, the Fed introduced a third category: “Eligible Broad Market Index Bonds”. This new category allows the Fed to immediately begin buying individual corporate bonds in much larger volume than previously anticipated. However, while the creation of this category came as a surprise, the announcement that the Fed would buy individual corporate bonds initially came in March.

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