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NY Fed's Singh says central bank can ramp up, slow down, corporate bond purchases as needed

10/20/2020 | 02:41pm EST

Oct 20 (Reuters) - The Federal Reserve's actions to unfreeze credit markets had a significant effect on the corporate bond market, despite a small footprint, and the central bank would take a flexible approach to providing more support if needed, a senior New York Fed official said on Tuesday.

The announcement in March that the Fed would begin to purchase corporate bonds through its corporate credit facilities helped to calm markets and lower borrowing costs, ensuring that companies could access credit, said Daleep Singh, executive vice president and head of the markets team at the New York Fed.

"The ultimate goal of these facilities was to provide a bridge for U.S. companies and their employees to the other side of the pandemic shock," Singh said at a virtual event organized by the Chamber of Commerce.

The Fed purchased exchange-traded funds and individual corporate bonds through its secondary market corporate credit facility, and it reduced the scale of those purchases as markets improved, Singh noted. It stopped purchasing exchange-traded funds altogether in late July.

However, the Fed stands ready to increase purchases if needed and it would take a flexible approach, Singh said. It would focus first on "direct purchases of corporate bonds" and then purchase ETFs if there was "significant market stress," he said.

"By varying both the amount and type of purchases, we are able to provide flexible support to the market," Singh said.

Asked about the Fed's purchases of bonds from companies that are not struggling financially, Singh said the goal of the facility is to improve market functioning by purchasing bonds broadly and based on an index.

"What we ensure is that our purchases are conducted in a way that's neutral across eligible sectors and companies," he said. (Reporting by Jonnelle Marte; Editing by Andrea Ricci)


© Reuters 2020
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