The Nomad Economist: Bond Trading at the Fed

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The Nomad Economist
Premiered Jun 13, 2021

One of the Federal Reserve’s “temporary emergency lending facilities” is being wound down! As announced on Wednesday, all assets purchased under the Secondary Market Corporate Credit Facility (SMCCF) are expected to be sold. The nearly $14 billion facility holds approximately $8.5 billion corporate bonds, plus various bond Exchange Traded Funds (ETFs) valued at approximately $5.2 billion. Bond ETFs are essentially bonds traded on the stock exchange. As the name of the facility implies, both asset purchases occurred on the secondary market.

This begs the question: Why did the Fed make bond purchases on the secondary market?

The primary market for bonds is one where a corporation issues a debt to investors in exchange for money, similar to an Initial Public Offering (IPO) for stocks. Whereas the secondary market is where bonds are traded between investors with hopes of earning a profit from investment activities, no different than trading stocks on the NASDAQ after an IPO.

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