(June 19): The US Federal Reserve has started buying corporate bonds in the secondary market, but it is not the first of its peers to do so. The European Central Bank (ECB) has been buying investment-grade corporate debt for more than four years, amassing the equivalent in euros of a US$250 billion ($348 billion) portfolio. Coincidentally, that’s how much the three-month Fed programme will be able to purchase.
The chief lessons from the ECB are that it is easier to start doing this than to stop and that the immediate benefits of these monetary tools wear off over time.
Fed Governor Jay Powell has also learned the need for clarity. By using its own eligibility index, the Fed’s decision on which bond issuers qualify should be easy to understand. This sounds like a more transparent approach than the ECB’s, which provides a lot of backward-looking information that isn’t much use for analyzing what it owns or what it will buy.