The Federal Reserve said it will begin buying individual corporate bonds June 16 and will initially structure its portfolio as a "broad, diversified market index" of U.S. corporate bonds.
The central bank has been buying exchange-traded funds that hold corporate bonds since May 12, but it has held off on buying eligible corporate bonds themselves until now. The Fed is making the purchases through its Secondary Market Corporate Credit Facility, one of nine emergency lending facilities that Fed officials and the Treasury Department launched to stabilize a U.S. economy rattled by the coronavirus pandemic.
In an updated FAQ, the New York Fed said it will initially structure the bond purchases "to create a corporate bond portfolio that tracks a broad market index developed for the SMCCF." The index will be recalculated at least every four to five weeks, although the list of corporate bonds that will be eligible for Fed purchases will be updated more frequently.
The Fed is limiting its bond purchases to companies that were deemed investment grade as of March 22, therefore continuing to make some "fallen angels" that were downgraded after that date eligible. The Secondary Market Corporate Credit Facility will buy already issued bonds in the secondary market, although the Fed is also planning to buy bonds from companies directly through a related Primary Market Corporate Credit Facility that the Fed said will be operational "in the near future."