The Fed's Strategic Play: Closing the Chapter on Its Credit Facilities
The Federal Reserve (Fed) unexpectedly announced plans to sell holdings of the Secondary Market Corporate Credit Facility (SMCCF) by year-end. Credit investors should stay the course, as this is a sign of market strength rather than a cause for concern. But the bigger point may be the message that the Fed is sending with this decision.
The SMCCF played a critical role in preventing a prolonged disruption in credit markets, and its unwinding marks an important milestone on the road to recovery from the pandemic-induced market volatility. The mere existence of the facility boosted the confidence of investors and corporate issuers alike, facilitating access to funding and secondary market liquidity when needed most.
Corporate Credit Facility Purchases Were Small but Impactful
Source: Guggenheim Investments, Bloomberg Barclays, Board of Governors of the Federal Reserve System. Data as of 5.31.2021.