The US Federal Reserve has stepped up its ETF purchasing programme, increasing the total amount by 433%, while expanding its definition of eligible assets to include individual corporate and broad market index bonds.
The latest disclosure from the Secondary Market Corporate Credit Facility (SMCCF), the Fed's programme to "support credit to employers by providing liquidity to the market for outstanding corporate bonds", saw total purchases rise to $6.9bn and the number of ETFs increase to 16 with the inclusion of SPDR Bloomberg Barclays Short Term High Yield Bond ETF.
Although seven of the 16 funds purchased are high yield ETFs, nearly 90% of assets have been invested in investment grade credit, with three funds alone each receiving over $1bn of central bank money.
Paul Syms, head of EMEA ETF fixed income product management at Invesco, noted despite this increase, the Fed support for credit markets has been a "relatively small amount" of the $2.4trn balance sheet increase but has made a "significant impact".
"Investment grade credit spreads have tightened by over 200 basis points from the peak seen in March while high yield credit spreads have tightened by almost 500 basis points over the same period."
BlackRock's iShares iBoxx US Dollar Investment Grade Corporate Bond ETF is the biggest beneficiary, receiving $1.7bn of Federal Reserve money as 18 June, making the Jerome Powell-headed institution the fund's third largest holder, according to data from Bloomberg.
Vanguard are providers of the two other ETFs most invested in by the Fed, with its Short-Term Corporate Bond ETF and Intermediate-Term Corporate Bond ETF receiving $1.3bn and $1bn respectively.
Michael John Lytle, CEO of Tabula Investment Management, said the Fed's use of fixed income ETFs to inject "much-needed liquidity" is "very positive" for the asset class as it "supports the argument that fixed income ETFs offer more transparent pricing than the underlying positions they hold".
Syms added the inclusion of ETFs in the purchasing programmes were "largely about the speed", as it is "easier from an operational perspective to get an ETF programme up and running" than to buy individual corporate bonds, which is evident in the ETF purchasing starting on 12 May as opposed to the individual bond purchases beginning 16 June.
Lidia Treiber, director, research at WisdomTree noted that while this disclosure revealed a "sharp increase", the corporate bond market and ETF equivalent provide "significantly greater capacity" for the Fed to continue its programme.
"Given that this is a useful tool for the Fed, the shape of the economic recovery and broad market sentiment will likely weigh heavily on the future direction of this programme."