The Federal Reserve’s (FED) long arm is getting closer. Yesterday, the FED admitted they plan to purchase individual corporate bonds. It was also announced that the US government wants to spend $ 1 trillion in infrastructure.
Effect on the market
After it was announced that the stock market will receive this injection, the futures contracts of major US stock markets rose.
Futures on the Dow Jones increased by an average of 503 points and it is expected that if the stock market opens today, the DJI 550 will have increased. A similar trend is also noticeable with the Nasdaq and the S & P500.
Buying debts through bonds
Let’s start with the FED. They want to buy up to (haha) $ 750 billion in corporate credit. They do this by buying individual bonds on the secondary market with a remaining term of five years or less. The idea behind buying up “individual debt” is to create a broad, diversified market index of US corporate bonds.
“This index consists of all secondary market bonds issued by US companies that meet the minimum rating, maximum maturity and other criteria. This indexing approach comes in addition to our ETFs buy-back program.