The Fed Added More High Yield to Its Bond Purchases

The Federal Reserve wasn’t done with bond purchasing after it stepped in to shore up the fixed income market following the height of the Covid-19 equities sell-offs. It opted for more high yield purchased during the month of July in addition to other equities purchases.

“The Federal Reserve in July bought up more bonds from blue-chip companies including Microsoft and Coca-Cola, while it added to its positions in junk debt and made its biggest Main Street loan to a ski resort and casino in the Pocono Mountains,” the CNBC report noted. “In its latest report to Congress on the myriad lending and liquidity programs implemented during the coronavirus pandemic, the Fed detailed a slew of new bond purchases as well as the first tepid steps in its much-touted loan program geared to small- and medium-sized businesses.”

In terms of high yield purchases, the Fed was smitten with high yield exchange-traded funds (ETFs).

“In addition, the Fed stepped up its buying of junk bonds, purchasing $331 million worth of the iShares iBoxx High Yield Corporate Bond ETF, a move up from June’s buying of $274.6 million,” the CNBC report noted. “It also continued its purchases of bonds that were low-level investment-grade heading into the pandemic and then were downgraded. It bought $34.6 million of the VanEck Vectors Fallen Angel High Yield Bon (ANGL) fund.”

Other ETF options investors can explore is the iShares iBoxx $ High Yield Corporate Bond ETF (HYG). HYG seeks to track the investment results of the Markit iBoxx® USD Liquid High Yield Index.

The underlying index is a rules-based index consisting of U.S. dollar-denominated, high yield corporate bonds for sale in the U.S. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents, as well as in securities not included in the underlying index.

HYG Chart

HYG data by YCharts

Another fund to look at is the FlexShares High Yield Value-Scored Bond Index Fund (HYGV). The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust High Yield Value-Scored US Corporate Bond IndexSM.

The index reflects the performance of a broad universe of U.S.-dollar denominated high yield corporate bonds that seeks a higher total return than the overall high yield corporate bond market, as represented by the Northern Trust High Yield US Corporate Bond IndexSM. The fund generally will invest under normal circumstances at least 80% of its total assets (exclusive of collateral held from securities lending) in the securities of its index.

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