Oct 20 (Reuters) - The Federal Reserve's actions to unfreeze
credit markets had a significant effect on the corporate bond
market, despite a small footprint, and the central bank would
take a flexible approach to providing more support if needed, a
senior New York Fed official said on Tuesday.
The announcement in March that the Fed would begin to
purchase corporate bonds through its corporate credit facilities
helped to calm markets and lower borrowing costs, ensuring that
companies could access credit, said Daleep Singh, executive vice
president and head of the markets team at the New York Fed.
"The ultimate goal of these facilities was to provide a
bridge for U.S. companies and their employees to the other side
of the pandemic shock," Singh said at a virtual event organized
by the Chamber of Commerce.
The Fed purchased exchange-traded funds and individual
corporate bonds through its secondary market corporate credit
facility, and it reduced the scale of those purchases as markets
improved, Singh noted. It stopped purchasing exchange-traded
funds altogether in late July.
However, the Fed stands ready to increase purchases if
needed and it would take a flexible approach, Singh said. It
would focus first on "direct purchases of corporate bonds" and
then purchase ETFs if there was "significant market stress," he
"By varying both the amount and type of purchases, we are
able to provide flexible support to the market," Singh said.
Asked about the Fed's purchases of bonds from companies that
are not struggling financially, Singh said the goal of the
facility is to improve market functioning by purchasing bonds
broadly and based on an index.
"What we ensure is that our purchases are conducted in a way
that's neutral across eligible sectors and companies," he said.
(Reporting by Jonnelle Marte; Editing by Andrea Ricci)