The Fed bought debt in Warren Buffett's Berkshire Hathaway, Coca-Cola, Walmart, and McDonald's in its first spree of corporate bond-buying

ReutersFILE PHOTO: Federal Reserve Board building on Constitution Avenue is pictured in Washington
  • The Federal Reserve spent $US428 million buying debt in individual companies in the first wave of its corporate bond-buying programme, data released Sunday showed.
  • It bought the corporate bonds in households names such as Walmart, Coca-Cola, McDonald’s, and Warren Buffett’s Berkshire Hathaway, the data showed.
  • The Fed spent $US5.7 million on debt in Berkshire Hathaway Energy, a subsidiary of Buffett’s conglomerate.
  • $US6.8 billion worth of corporate debt ETFs were also bought by the Fed, with the central bank pouring $US1.8 billion into a single ETF.
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The Fed bought $US428 million worth of corporate bonds in its first foray into company debt as part of its response to the coronavirus, snapping up debt in household names like Coca-Cola, AT&T, and Berkshire Hathaway in the process.

A transaction list disclosed Sunday shows the Fed’s first round of company bond purchases, showing that the central bank bought debt in some 86 different companies as it fights to keep corporate America afloat amid an unprecedented economic shutdown.

The transactions shows the Fed piled in $US5.7 million into Berkshire Hathaway Energy, the energy subsidiary of Warren Buffett’s conglomerate. It also bought almost $US6.5 million of McDonald’s debt, and $US2.2 million in Southwest Airlines.

Other major US household names purchased by the Fed include:

  • $US16.4 million of AT&T debt.
  • $US7.6 million of Boeing debt.
  • $US6.6 million of Coca-Cola debt
  • $US5.1 million of Exxon Mobil debt.
  • $US7.9 million of Ford debt.
  • $US8.7 million of Walmart debt.
  • $US6.2 million of Philip Morris International debt.

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The Fed made the largest purchases in bonds of United Health Group and AT&T, buying more than $US16 million in each of the separate bonds.

48% of the bonds bought were rated AAA, AA or A, the Fed said, while 48% were BBB rated, and the final 4% was rated BB.

The Fed announced in mid-June that it would begin purchases of up to $US250 billion in corporate bonds. The program known as the Secondary Market Corporate Credit Facility will take in up to $US250 billion in corporate bonds from eligible issuers.

The Fed can also tap $US25 billion in funding assistance from the Treasury Department as set aside by the CARES Act.

On the ETF front, the Fed also invested in 16 corporate bond exchange traded funds, with a total value of $US6.8 billion, as of June 18.

Its biggest purchase was in the iShares iBoxx US Dollar Investment Grade Corporate Bond ETF. It invested close to $US1.8 billion in the fund, buying around 13.3 million shares.

The Fed’s program, which was revealed on March 23, was a response to helping the economy remain afloat during the novel coronavirus pandemic and led to investors flocking back to stocks and corporate debt after the announcement.

Even before the Fed made any purchases this June, the S&P 500 rallied from touching its coronavirus lows, on hopes for a rapid economic recovery. The S&P 500 is up 35% since March 23.

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The Fed’s Primary Market Corporate Credit Facility that will buy debt directly from firms is not yet operational.

When it the program does begin, it is expected to take in about $US500 billion of corporate debt.

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