Pump And Dump? After Driving Corporate Bond & Junk-Bond Rally to Lowest Yields Ever, Fed Ends Bailout SPV with $513 Million Profit, Sends 90% to US Treasury | Wolf Street

Since the Fed was effectively barred from buying corporate bonds, it set up a separate legal entity, an LLC it named “Corporate Credit Facilities” (or CCF). It lent money to this Special Purpose Vehicle while the US Treasury provided equity capital to the SPV. The SPV then bought the corporate bonds and ETFs. BlackRock was involved and then State Street, and a whole bunch of bond funds from which it bought the bonds, and everyone and their dog began front-running the Fed, and a huge rally in corporate bonds, junk bonds, and bond ETFs ensued because, you know, the Fed would be buying $750 billion of this stuff.

On June 2, the Fed announced that it would sell bonds and bond ETFs outright, and then sold them into the hottest bond market ever, and the SPV received market value for these bonds. Other bonds matured and were redeemed, and the SPV received face value for those bonds. By the end of August, the Fed’s SPV had sold the last corporate bonds and bond ETFs.

The Fed enriched these speculators, while at the same time, it crushed the savers, first through its interest rate repression, and then since early this year, with the worst inflation in three decades. It was a massive wealth transfer, from savers to bond holders, accomplished in two slick steps. But OK. The savers, who’d refused to speculate, had it coming. To heck with them – that’s the official policy of the Fed.

After Driving Corporate Bond & Junk-Bond Rally to Lowest Yields Ever, Fed Ends Bailout SPV with $513 Million Profit, Sends 90% to US Treasury | Wolf Street