Fed’s balance sheet tops $7 trillion, shows increased buying of corporate bond ETFs

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The Fed’s support has driven up prices for ETFs, after announcing recently it would buy corporate bond exchange-traded funds for its corporate credit facility. Use Overbond to screen for the bond ETFs by pricing with deep liquidity profiling to view individual constituents.

Source: MarketWatch

The numbers: The Federal Reserve’s balance sheet increased to $7.09 trillion for the week ending in May 20, up from $6.98 trillion in the previous week, the central bank said Thursday.

What happened: The Fed’s holdings in its corporate credit facility grew by $1.50 billion to $1.80 billion, after the central bank announced last Tuesday it would buy corporate bond exchange-traded funds.

The central bank’s support has driven up prices for these ETFs, especially for those focusing on investment-grade issuers.

The iShares iBoxx $ Investment Grade Corporate Bond ETF LQD, -0.10% is up 2.1% year-to-date, versus the 8.7% drop in the S&P 500 SPX, 0.17% over the same stretch.

Mortgage-bond purchases outpaced the Fed’s buying of U.S. government paper. Holdings of agency mortgage-backed securities rose by $79 billion to $1.86 trillion, while holdings of Treasurys increased by a more modest $32 billion to $4.09 trillion.

The Fed’s liquidity swaps, lending greenbacks to foreign central banks, grew by $5.17 billion to $446 billion.

Big picture: “Given the strength of both the primary and secondary corporate bond markets, it is not entirely clear how much the Fed really needs to buy through this facility, but surely investors are comforted to know that it is there as a backstop if needed,” said Thomas Simons, senior money market economist at Jefferies.