(16 JUNE 2020)DAILY MARKET BRIEF 1:Fed to the rescue

<p>The Federal Reserve (Fed) announced on Monday to enlarge its scope of asset purchases, now including corporate debt under its Secondary Market Corporate Credit Facility. So far, this program allowed buying ETFs, from now on, the Fed will also buy a diversified portfolio of individual corporate debt. We do not know yet if the Fed’s so-called corporate bond index would be made public – which we doubt given that it would trigger a rush toward the bonds of companies being part of the index, but the details of how the Fed would implement its strategy is clear. This means that the Fed has found a way to come directly to the rescue of distressed companies. Fed buying corporate debt means that companies will have lighter liabilities against their debt holders and a clearly reduced risk of bankruptcy for their shareholders. Of course, the Fed’s plans to buy individual corporate debt has been mouth-watering for equity investors, who rapidly put aside the mounting worries of a second wave Covid-1</p>