Fed to purchase corporate bonds to boost struggling businesses, financial markets

The Federal Reserve announced Tuesday that it will purchase corporate bonds to provide short-term funding to businesses struggling to make payroll and pay expenses as the economy craters due to the global coronavirus pandemic.

The Fed on Tuesday revived a facility last used during the 2007-08 financial crisis and recession to buy bonds from companies facing severe financial distress that would otherwise be creditworthy.

The Fed’s Commercial Paper Funding Facility (CPFF) will buy three-month bonds from companies with strong credit ratings to help those firms retain workers and handle operating costs amid a likely nosedive in consumer spending. The facility will be run through the Federal Reserve Bank of New York and backed by $10 billion in credit protection from the Treasury Department.

“Commercial paper markets directly finance a wide range of economic activity, supplying credit and funding for auto loans and mortgages as well as liquidity to meet the operational needs of a range of companies,” the Fed said in a statement.

“By ensuring the smooth functioning of this market, particularly in times of strain, the Federal Reserve is providing credit that will support families, businesses, and jobs across the economy.”

The return of the CPFF is the central bank’s latest effort to support struggling businesses and stabilize financial markets to lessen the blow of a likely recession. The facility is also intended to help banks and lenders keep credit flowing to households and businesses by supporting purchase and sale of corporate bonds.

A vibrant and stable market for Treasury and corporate debt helps banks and lenders fund credit cards, home and auto loans, and loans to businesses. But bond markets have seized over the past month as banks and companies scramble for cash.