So its buy the rumor, buy the news, buy the press release about actual buying, and now buy another press release:
US equity markets roared higher in the last few months after the Fed basically promised to backstop every shitty credit company in America and zombify the US economy.
And on the back of yet another press release at 2pm that the Fed will now finally start buying corporate bonds - as it had announced three months ago - in addition to already buying between $1-$2 billion in ETFs each week as it started doing one month ago, US equity markets all spiked into the green for the day:
The Nasdaq has ramped above Friday highs and back to its old all time highs:
What is odd is that the only actual news in today's announcement which the Fed originally made back in March (when it announced both single-issuer bond as well as ETF buying) is that the Fed will buying bonds according to a "broad, diversified market index of U.S. corporate bonds" that is "made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility's minimum rating, maximum maturity, and other criteria. This indexing approach will complement the facility's current purchases of exchange-traded funds."
But even that was to be expected, which is why as Vital Knowledge notes, "the Fed's 2pmET announcement seems unnecessary as they just repeated what the SMCCF was supposed to be doing all along, unless officials saw prices off steeply this morning and were looking to prevent a larger downdraft in markets."
The Fed's 2pmET announcement seems unnecessary as they just repeated what the SMCCF was supposed to be doing all along, unless officials saw prices off steeply this morning and were looking to prevent a larger downdraft in markets— Vital Knowledge Media (@knowledge_vital) June 15, 2020
In short, the latest threat to shorts is that the Fed will occasionally publish "press releases" on down days, to force algo momentum higher to avoid risking a rout.
Naturally, junk bonds - which will clearly benefit from the Fed's buying, or at least those "fallen angel" bonds that were rated IG before March 23 - are surging, as is the LQD ETF of IG credits.
The Federal Reserve Board on Monday announced updates to the Secondary Market Corporate Credit Facility (SMCCF), which will begin buying a broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers.
As detailed in a revised term sheet and updated FAQs, the SMCCF will purchase corporate bonds to create a corporate bond portfolio that is based on a broad, diversified market index of U.S. corporate bonds. This index is made up of all the bonds in the secondary market that have been issued by U.S. companies that satisfy the facility's minimum rating, maximum maturity, and other criteria. This indexing approach will complement the facility's current purchases of exchange-traded funds.
The Primary Market and Secondary Market Corporate Credit Facilities were established with the approval of the Treasury Secretary and with $75 billion in equity provided by the Treasury Department from the CARES Act.
Here are the eligibility criteria for eligible issuers: the only cut off is for junk bonds that should have been investment grade before March 22, something we knew already, and also that depository institutions are excluded:
The Fed purchases are capped at about 10% of total bonds outstanding:
Limits per Issuer/ETF: The maximum amount of instruments that the Facility and the PMCCF combined will purchase with respect to any eligible issuer is capped at 1.5 percent of the combined potential size of the Facility and the PMCCF. The maximum amount of bonds that the Facility will purchase from the secondary market of any eligible issuer is also capped at 10 percent of the issuer’s maximum bonds outstanding on any day between March 22, 2019, and March 22, 2020. The Facility will not purchase shares of a particular ETF if after such purchase the Facility would hold more than 20 percent of that ETF’s outstanding shares.
The full term-sheet is below:
So when will they announce the buying of stocks directly?