The Federal Reserve is emerging as big winner from its foray into credit exchange traded funds (ETFs).
The central bank is set to turn a nice profit on a sale of corporate bonds and related ETF holdings that formed part of an emergency measure last year in response to the pandemic.
The Federal Reserve accumulated some $8.6 billion in bond ETFs throughout 2020.
Citigroup Inc calculated the Federal Reserve stood to earn a profit of about US$140 million from price appreciation alone, Bloomberg reports.
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The Federal Reserve intervened in the corporate bond market last year to help trigger a rally across the credit spectrum. High-yield bonds have performed strongly since.
“It is worth noting that the Fed currently has a paper profit on its ETF portfolio,” Drew Pettit and Scott Chronert, analysts at Citigroup, said.
“The Fed could act more quickly in certain holdings here to lock in gains.”
