Seeing some confusion over what the Fed is/isn't buying.
What they are buying:
- UST
- MBS backed by Fannie/Freddie/Ginnie, incl. CMBS
What they are not buying:
- corporate bonds
- corporate bond ETFs
- ABS
- commercial paper
- etc.
Wait what? Yes.
What they are buying:
- UST
- MBS backed by Fannie/Freddie/Ginnie, incl. CMBS
What they are not buying:
- corporate bonds
- corporate bond ETFs
- ABS
- commercial paper
- etc.
Wait what? Yes.
On the Fed's balance sheet recorded as assets will be loans to legal entities ("SPVs") that are owned by the US Treasury. The Treasury puts up cash, then this small entity borrows from the Fed at scale, giving it WAY more $ than the equity put in by Treasury.
In practice, given the leverage with which the Fed will be lending to the SPVs, this is a distinction without difference.
But it's important to understand the basic mechanics at work here if you're going to do something other than trade headlines IMO.
But it's important to understand the basic mechanics at work here if you're going to do something other than trade headlines IMO.
Also, ironically, ESF SPVs are 1) monetary/fiscal coordination and 2) not really different from a sovereign wealth fund, other than taking primarily junior positions in the cap structure rather than equity stakes.
