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> If no one wants to sell to the Fed, why do they need a certification? I don't understand your first question. The certification process covers both primary a
by whatok 6y ago
> If no one wants to sell to the Fed, why do they need a certification?
I don't understand your first question. The certification process covers both primary and secondary purchases. The Fed's terms for primary purchases are pretty punitive and most issuers that qualify for it would easily be able to raise in syndicated markets. Markets are open right now so this does not present an issue.
The problem is the Fed is also unable to make secondary purchases unless issuers go through the certification process. The main purpose of the SMCCF is to buy secondary corporate bonds and they're unable to move on that because of the certification process.
Issuers would love to sell to the Fed but your understanding is only a small reason why none have certified yet. A lot has changed since these facilities were announced and there was extreme backlash against larger corporations taking advantage of PPP. There's a similar fear attached to this.
> Also they're buying ETFs of bonds, are you saying this is materially different than buying the actual bonds?
Yes, there absolutely is a material difference for the purposes of this facility and in actual trading. For the purposes of this facility, there are still many sectors/subsectors trading pretty wide to pre-covid levels. If you believe that these bond purchases facilitate the Fed's mandate of maximum employment, then targeting specific sectors that are having funding pressures would be one of accomplishing that.
> If there is something preventing you from making trades it means you have lower liquidity.
That's a really bizarre definition of liquidity for the context of this; especially when you're talking about the Fed. The discussion was on ETFs being more liquid than the underlying bonds. Something preventing me from trading does not mean that the thing being traded is illiquid. For example, there are many securities that require an ISDA to trade and offer way more liquidity than other similar options.
- arkis22 6y agoThe Fed does not want to do credit analysis. They do not want to be the primary purchasers of debt. As a lender of last resort, they want to buy debt from primary purchasers in the hope that they valued the debt correctly. Of course... Everyone with poor debt quality would LOVE to sell to the Fed... One of the big lessons of ETFs the past year has been whether the underlying "fake" liquidity of ETFs would cause problems for the underlying real poor liquidity of bonds. The Fed is buying ETFs because the price of the ETF goes into the underlying bonds. The Fed is buying bonds. They think it's close enough to buying the bonds. It's really bizarre to me that you think a poor definition of liquidity is that you personally cannot sell bonds. I don't care if the market is bad or your phone is too broken to make your sell order. Complain to your boss that the market was fine but you couldn't make the trade. See what they say. You cannot trade. Your liquidity is bad.