Michael Wagner Explains the Fed’s Selling of Corporate Bonds Announcement to CFO Dive

On June 2, the Federal Reserve announced that it will sell $14.2 billion of investment-grade corporate debt and corporate bond ETFs, known as the Secondary Market Corporate Credit Facility (SMCCF), that it began buying in March 2020 to circumvent the dive in the credit market that occurred during the COVID-19 pandemic. According to a Moody’s Analytics report, this exit by the Fed could result in “some temporary disruptions, but we don’t expect anything that would justify a change in our baseline forecast.”

To better understand what this could mean for the market and investors, CFO Dive turned to Omnia Family Wealth Co-Founder and Chief Operating Officer Michael Wagner for insight.

“It’s much easier to buy than it is to sell without disrupting prices,” Wagner tells the publication. He further explains that the Fed “is still not touching its balance sheet,” which is worth a record $7.9 trillion, and that is “a much bigger ship to turn” than slowly selling the $14.2 billion SMCCF.

While the Fed may avoid touching its balance sheet, Moody’s predicts a rise in the 10-year Treasury yield to more than 2% by the end of 2021 and 3% by the end of 2023. As a result, Wagner believes that investors may want to consider selling debt before rates rise. “The cost of credit is still pretty low and, if we’re looking at it from a historical lens, we may not see rates this low for a long time,” he explains.

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