The Federal Reserve went on a massive bond-buying spree that included purchases of bond exchange traded funds (ETFs) at the height of the pandemic last year. Now, the Fed looks to sell off these assets.
“The Federal Reserve will soon begin selling off the corporate bonds and exchange-traded funds it amassed last year through an emergency-lending vehicle set up to contain the Covid-19 pandemic’s economic fallout,” a Wall Street Journal article said.
“The vehicle, known as the Secondary Market Corporate Credit Facility, or SMCCF, held $5.21 billion of bonds from companies including Whirlpool Corp., Walmart Inc. and Visa Inc. as of April 30,” a WSJ article said. “In addition, it held $8.56 billion of exchange-traded funds that hold corporate debt, such as the Vanguard Short-Term Corporate Bond ETF.”
Last year, the SMCCF was established in March 2020 to shore up the debt market while equities were experiencing a fire sale amid the pandemic scare. It proved to be a wise move.
“The SMCCF proved vital in restoring market functioning last year, supporting the availability of credit for large employers, and bolstering employment through the Covid-19 pandemic,” the Fed said in a statement Wednesday.
Scooping Up What the Fed Left Behind?
Investors have the opportunity to scoop up the Fed’s old funds. A couple of funds worth looking at include two Vanguard ETFs.
The Vanguard Interim-Term Corporate Bond ETF (VCIT) was mentioned as one of the funds the Fed purchased in 2020, and is ideal for investors willing to take on more duration risk. VCIT seeks to track the performance of a market-weighted corporate bond index with an intermediate-term dollar-weighted average maturity.
The fund employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 5-10 Year Corporate Bond Index. This index includes U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility, and financial companies, with maturities between 5 and 10 years.
Investors looking to limit their duration in corporate bonds can opt for the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH). VCSH seeks to track the performance of a market-weighted corporate bond index with a short-term dollar-weighted average maturity, and also employs an indexing investment approach designed to track the performance of the Bloomberg Barclays U.S. 1-5 Year Corporate Bond Index.
For more news, information, and strategy, visit the Fixed Income Channel.