In separate research, strategists at Morgan Stanley counter-intuitively found that US bond yields tended to fall during the previous episode of quantitative tightening as prices rose — a conclusion they said was “not a typo” and attributed in part to economic growth patterns. “This is clearly a complicated story, where balance sheet change is just one of many factors which impact cross-asset performance,” they said, adding that analysis is “hamstrung by a severe shortage of data”.

Still, Fed officials and researchers have offered up rough estimates. According to a June study published by the Fed, a $2.5tn drawdown in the balance sheet over the next few years would be roughly in line with just over a half-point increase in the benchmark US policy rate — a range in keeping with Fed vice-chair Lael Brainard’s assessment that the central bank’s plans amount to “two or three additional rate hikes”.

The ramp-up in scale and range of QE in 2020 compared to 2008 was “completely insane”, says Tatjana Puhan, deputy chief investment officer at French asset management group Tobam.Over the course of two years, the Fed snapped up some $3.3tn in US government bonds and $1.3tn in agency mortgage-backed securities. As of March, that left the US central bank owning a quarter of all outstanding Treasury debt and a third of agency MBS.The ECB and BoE each own just shy of 40 per cent of their government bonds, while the Bank of Japan, which is unique in having no intention of stopping its purchases, already owns nearly half of Tokyo’s outstanding government debt.

“For rate cuts, the first cut is the deepest,” said Tom Orlik, chief economist at Bloomberg Economics. “For quantitative easing, the biggest bang comes from the first buck. The swing back to net asset purchases by major central banks is a pivotal moment. The second time around, though, quantitative easing will struggle to gain the same traction as it did the first.”

The Federal Reserve’s decision to stop shrinking its balance sheet from Thursday means the era of quantitative tightening by major central banks is over less than a year after it started.

A third, and I’ll just mention it. A third thing, which is very important in manufacturing, is tradable. You don’t have to develop a whole industrial complex. You can import inputs and then export the outputs. You don’t require domestic demand to take off. You don’t require an economy-wide productivity revolution in order to have consumers to whom you can sell your output. You can simply sell it on world markets.

The second thing, which I think is the microeconomics of why it is that manufacturing is so special is that manufacturing, standard, traditional manufacturing like making cars or garments or toys or wigs, has the feature that you can absorb a lot of very unskilled workers into that. Being a production worker, even in an auto factory, certainly in a footwear factory, doesn’t take a whole lot of skill. That means that you can absorb a lot of people off the countryside in a much more rapid way than you could in a lot of other activities where technology and skill are actually highly complementary.

One is that manufacturing technology is much more easily transportable across international borders. It’s much easier to adopt and adapt manufacturing technology. You can take a textile and clothing plant. You still have to tinker with it, but it’s much easier to transplant, unlike many agricultural technologies.

I think what matters here is probably less the quantitative side, how rapidly you’re growing, but the qualitative things that are happening during the growth process. You have to bear in mind that there are archetypal, successful industrialization growth, liberal democracy kind of countries in fact, never experienced the kind of growth rate that Japan and South Korea or China did. In the aftermath of the Industrial Revolution, Great Britain was growing at rates that we would scoff at today for any emerging market. So, it wasn’t the growth itself that enabled the development of the middle class and the emergence and the spread of liberal values and the creating of the liberal democracy, but the transformation of the economy and its social structure in a particular kind of way: if you will, the spread of bourgeois liberal values, the restraints placed on the state in terms of how much it could do and under what kind of circumstances.

Copper inventories at the LME have been falling for some time. Demand for copper is growing as the economy recovers and the automotive market shifts toward electric vehicles. New supply for copper is coming online slowly, mostly due to regulatory and political challenges in copper-rich regions. If you were foolish enough to short copper with these market dynamics, punishment should have been swift. If you were shrewd enough to take the other side of the trade, rewards should have been realized.Instead, the LME engaged in temporary price suppression.

Let’s deconstruct what happened. Below is the 3-month spread chart for copper. Essentially, somebody was caught naked short and could not make delivery. They collected money from another trader at some point in the past on the promise that they would have copper to give them, but when the time came, they couldn’t make good on their contractual obligations. The price of copper for immediate delivery skyrocketed compared to the price of copper for delivery in three months. Traders call this situation backwardation and view it as a sign of extreme tightness in the physical market.

On Monday, April 20, 2020, the price of oil fell to minus $37.63 a barrel. How did this happen? Somebody was long an oil contract and was obligated to take physical delivery. They had no place to put it. Somebody else had the ability to take physical delivery at that moment in time and demanded $37.63 a barrel to do so. To use language the apes at WallStreetBets might understand, somebody got caught naked long and the market taught that person a severe lesson.

Let’s look at it another way. Assume you believe, like I do, that gold is the only real money. How much gold buys you a barrel of oil? Today, it is a shockingly low amount – only 0.036 ounces. Yes, you read that correctly. Roughly 1 gram of gold does the trick. When oil was trading at $145 in mid-2008, its price in gold was 0.15 ounces. With gold now trading at $1,900 an ounce, that works out to about $285 a barrel oil.

We are now ready to put the prices for natural gas in the chart above into shocking context. On an energy-contained-in-oil-equivalency basis, natural gas prices reached the following levels in February:            SoCal Citygate: $835 per barrel            Chicago Citygate: $752 per barrel            Houston Ship Channel: $2,320 per barrel            Waha: $1,196 per barrel            OGT: $6,919 per barrel            Henry Hub: $137 per barrel            Agua Dulce: $528 per barrel

There are at least four forces aligning as huge tail winds for fossil fuel prices. First, and most important, the ESG/progressive crowd has utterly and totally won the narrative war and they will press the consequence of their undeniable victory to the maximum by attacking supply at every opportunity. Second, the fossil fuel industry is coming off a period of extended underinvestment in capital projects already, which was exacerbated by the fallout from the COVID-19 crisis. Third, massive monetary and fiscal stimulus is stoking demand for commodities globally, and fossil fuels will not be exempt (on the contrary, since fossil fuels are critical to the production of other commodities, they will feel an amplified effect of this phenomenon). Finally, and related to the third force, fiat currencies are being debased at an unprecedented rate.

So how can we compare these prices to the price of oil? One of the problems with comparing quoted prices for different sources of energy is they are priced in different units, which is mostly an accident of history. For example, natural gas is priced in dollars per million British thermal units (BTUs), whereas oil is priced in dollars per barrel (a barrel being 42 gallons), and gasoline is priced in dollars per gallon (a gallon being a gallon). Habits are hard to break. To create an apples-to-apples comparison of what these prices mean, a useful trick is to first levelize everything to millions of BTUs, which is how natural gas is sold anyway, and it just happens to be a direct measure of the inherent energy content embedded in a fuel. A standard barrel of oil contains 5.8 million BTUs. If you take the current price of oil (in dollars per barrel) and divide it by the current price of natural gas (in million BTUs), you’ll almost always get a number higher than 5.8, which makes sense because oil is generally more useful than natural gas and natural gas is often a byproduct of oil production. But on an energy-content-equivalency basis, 5.8 is the number. To put natural gas prices into an energy-contained-in-oil-equivalency basis, we simply do the reverse and multiply the price of natural gas, expressed in millions of BTUs, by 5.8.

Credit Where Credit is Due

Doctor Copper Is Sick

In a report published in April, Adamas said that the lack of new primary and secondary supply sources for rare earth oxides in the market from 2022 onwards, coupled with the inability of existing producers to increase their output, will create a major neodymium-praseodymium (NdPr) oxide shortage by 2035.   “If we consider that China is responsible for about 90% of the world’s neo magnet production today and 70% of the demand for those magnets exists in China, and then we consider…around one-third of the market to be unsatisfied by 2035, we can quickly begin to see the calculus that China is going to be faced with,” said Castilloux at a webinar on rare earths organized by BMO. 

Mountain Pass was idle with eight employees and on the brink of losing its permit. It was literally days away from being shut down permanently, which in hindsight, would have set the U.S. back decades.

I feel very comfortable stating that Mountain Pass is the most environmentally sustainable rare earth production site in the world. We have a dry tailings facility that eliminates the need for a wet tailings pond and the associated contamination risks. After it’s processed and the rare earths are removed, we return material to ground in a dry state. That's a critical environmental benefit. Only about three to six percent of mines around the world implement this process. No rare earth sites do. Also, about 95% of the water we use—a billion and a half liters per year— is recycled.

Mountain Pass is a co-located site with a world-class ore body adjacent to a scaled processing facility. Rare earths, from a geological perspective, are not all that rare. The ability to extract and process them economically, however, is exceedingly rare. Mountain Pass is considered world-class because the concentration of contained rare earths is about seven percent. That compares to .1% to 4% for most global deposits, including those in China. Most competing rare earth operations separate mining from processing – often by hundreds or thousands of miles. This adds logistical complexities, increases energy and carbon intensity, and ultimately, impacts a project’s bottom line.

As the world transitions to a clean energy economy, global demand for these critical minerals is set to skyrocket by 400-600 percent over the next several decades, and, for minerals such as lithium and graphite used in electric vehicle (EV) batteries, demand will increase by even more—as much as 4,000 percent. The U.S. is increasingly dependent on foreign sources for many of the processed versions of these minerals. Globally, China controls most of the market for processing and refining for cobalt, lithium, rare earths and other critical minerals.

Unless credit creation in 2022 rivals the historic growth seen last year, bank deposits look set for the first annual decline since the early 90s.

Wholesale electricity prices have soared by more than 140 per cent in 2022 alone, driven by surging gas prices even as 70 per cent of Australia’s gas is exported overseas.

Last month, sales of used cars less than 10 years old were down 27% compared with March 2021, according to car shopping app CoPilot, which tracks dealership prices nationwide. The average price during that same time jumped 40% to $33,653. For nearly new cars — those 1 year to 3 years old — sales in March were down by 31% compared to a year earlier, while the average price of $41,000 is 37% higher, CoPilot research shows. In the first two months of 2022, prices for this age group dropped almost by 3% before increasing again in March amid continued production challenges for new cars and uncertainty related to the war in Ukraine.

The upshot is that consumers are taking their time buying a used car. The average time spent looking for one has jumped 93% to 171 days from 89 days in from March 2021, resulting in dealer inventories of 1-year to 3-year-old cars returning to pre-pandemic levels.

Pragmatic Capitalism

For Bagehot, the Bank rate should be very high (that is, higher than the market rate) in order to incite banks to find liquidity first in the money market before asking for central bank liquidity, while Tooke advocated the “moderate rate” rule (that is, lower than the market rate) in order to mitigate the collapse of asset prices within financial markets, and to avoid a coordination problem within the market of funding liquidity.

“Lending freely against good collateral at a high rate” was not a doctrine that Walter Bagehot could have discovered in 1873 after decades of obscurantism. The directors of the Bank of England witnessed at the 1832 parliamentary inquiry how the Old Lady applied the policy of “lending liberally against acceptable collateral” during the 1825 crisis. The practice of lending at a high rate appeared under the Peel system from the 1847 crisis onwards. So, what appears as particular to Bagehot’s Lombard Street is the justification of the rule of a “very high” rate. Bagehot did not suggest a “penalty” rate (a term he did not use) so as to counter moral hazard, but a “very high” rate in order to force banks to exhaust market sources of liquidity before presenting at the Bank’s discount window. Like Henry Thornton and John Fullarton, Thomas Tooke was aware of the moral hazard problem and recommended banking supervision. Moreover, he suggested that the Bank rate should be set above the market rate in normal times – and not at a very high level in crisis times – so as to lean against the wind.

An aggressive QT will both rapidly increase the supply of duration to the market while at the same time rapidly reduce the cash balances of banks, a key marginal buyer. The combination of a positive supply shock and negative demand shock can eventually again lead to violent dislocations.

Banks and foreigners (and Fed) have been the key marginal investors in Treasuries, but they are unlikely to increase their holdings going forward. Foreign private investors fund their purchases in the FX swap market, where rising borrowing costs from rate hikes are making dollar assets less attractive. Certain large foreign sovereigns may hesitate to further increase dollar exposure out of prudent risk management. With respect to banks, some large banks have indicated a shift in preference from securities to loans due to strengthening loan growth. QT will also mechanically shrink bank balance sheets so banks will no longer need to optimize returns by swapping reserves for Treasures.

The Fed’s maturity profile for Treasury coupons is front loaded and for Agency MBS is an estimated $25b a month pace. An aggregate cap that begins at $50b and ramps up to $80b would achieve $3t in QT in around 3 years. The Fed’s Treasury bill holdings are not strictly part of a QE program and may be managed separately.

A conservative estimate based on the pre-pandemic Fed balance sheet size, and taking into account growth in nominal GDP and currency, arrives at a normalized balance sheet of around $6t. This would imply QT at rate of ~$1t a year, roughly twice the annual pace of the prior QT.

Recent remarks from Chair Powell suggest quantitative tightening will proceed at a pace of $1t a year, double the annual pace of the prior QT. That could imply a process that quickly ramps up to around $700b in Treasuries and $300b in Agency MBS in annual run-off. At the same time, Treasury net issuance is expected to remain historically high at ~$1.5t a year. This implies that non-Fed investors will have to absorb ~$2t in issuance each year for 3 years in the context of rising inflation and rising financing costs from rate hikes. Even the most ardent bond bulls will not have enough money to absorb the flood of issuance, so prices must drop to draw new buyers.

The price of any asset is not so much determined by perceived economic fundamentals as by supply and demand. This is particularly the case for safe assets like Treasuries, where vast swaths of issuance is absorbed by investors who are either not interested in returns or highly constrained in their investment options. The remaining discretionary managers live in a post-GFC world where balance sheet is scarce. When balance sheet is scarce, then there is only so much bank credit or repo financing available to fund positions and shape prices.

The mere prospect of rate hikes mechanically reduces the market value of Treasuries, which are widely held as money like safe assets. The declines in value are net losses to the financial system that are also unevenly distributed and cannot be hedged system wide. The losses are further transmitted across asset classes as diversified investors rebalance their portfolios by selling other assets. When investors are leveraged and markets are fragile, the rebalancing can lead to significant market volatility.

The repo market quickly stabilized, but it was difficult to tell if the spike was actually caused by an insufficient level of reserve balances. In any case, the repo spike marked the end of the Fed’s QT experiment.

QT gradually drained bank reserve balances (and the RRP) until it was ended late 2019 after a sudden spike in repo rates. The Fed frequently surveyed banks throughout QT to gauge their minimum level of required reserves. Banks widely reported that they had a lot more reserves than they needed. A rough estimate based on the surveys suggested that the banking system as a whole needed about $600b in reserves, which implied that QT could’ve continued all to way to 2021.

Maturing principal that is in excess of the QT pace is rolled over at auction. For example: if the Fed receives $20b in maturing principal but is capping the pace of QT at $15b a month, then it will rollover $5b into next auction. The $5b will be rolled over in proportion to the offering sizes being auctioned. For example: if $40b of 3-year and $60b of 10-year were being offered, then $2b would be rolled into the 3-year (40%) and $3b would be rolled into the 10-year (60%). (For detailed rollover mechanics see here).

Note the maximum amount of QT the Fed can conduct each month is limited by the amount of maturing principal it receives that month. The amount maturing varies significantly each month and is largely a function of past policy choices.

Note that the Treasury may alter its issuance patters during QT – such as issuing more short-term debt since longer dated debt may become more expensive in the absence of QE. QT can thus indirectly impact curve shape.

Mechanically, QT reduces the level of cash held by Banks (reserves) and changes the composition of money held by Non-Banks (more Treasuries and fewer bank deposits). The Fed is unsure how low Bank reserve levels can fall before impacting the financial system, so it executes QT at a measured monthly pace. The prior QT experiment began in late 2017 and ended in September 2019, when a sudden spike in repo rates panicked the Fed into restarting quantitative easing.

Viktor Shvets

But market participants say the recent blow-out of bid-ask spreads for older Treasurys is not so much a reflection of funding pressures, and more a reflection of how dealers were struggling to handle unprecedented daily volatility in the bond-market.

Trading costs for off-the-run Treasurys tend to blow up when strains arise in short-term funding markets as they did when the 1998 implosion of the hedge fund Long-Term Capital Management, which had borrowed from short-term funding markets to scale up its billion-dollar wagers on bond-market spreads such as those between older and newer Treasurys to narrow. In 1998 a lack of illiquidity amid worries over financial crises in Europe and emerging markets saw demand for the most liquid on-the-run Treasurys soar and appetite for off-the-run bonds dwindle. Advertisement This blew up the price difference between the two buckets of bonds, forcing LTCM to unwind and liquidate its positions, and freezing funding markets as banks realized one of their biggest borrowers was at the risk of collapsing.

Though traders have been able to move in and out of on-the-run Treasurys with relative smoothness, it’s the less liquid and much bigger off-the-run portion of the market that has seen a sharp erosion of liquidity. This has led to a sharp widening of the price difference between the two buckets of bonds, know as the basis, in recent sessions.

In calm trading, the difference in prices between newer and older Treasurys is usually slim.

During times of intense volatility like this week, dealers, however, will demand a hefty premium to trade off-the-run Treasurys, as it could be difficult to take them onto their balance sheet and offload them again to a willing buyer.

The consolidation of banks in the aftermath of 2008 means the bond market is now relying on a narrower group of broker-dealers to connect market participants who want to buy and sell their bonds. In addition, dealers have been saddled with post-crisis regulations that mean they cannot lever up their balance sheet to trade at a much larger capacity like they could in the past. “Pre-crisis, on-the-runs and off-the-runs were indistinguishable as pools of liquidity,” said Estes.

Yield-curve inversion in bond and funding markets is a recession indicator primarily because it reveals long-term investors are not confident enough in long-term growth prospects to bet their capital on riskier investments with potentially much greater rewards, such as growth companies, infrastructure and capital equipment-related projects.Instead, there is a tendency to park billions of dollars of capital in long-bonds, despite central bank rate hikes, with the strong demand depressing yields.

Companies issued bonds at record-shattering rates in 2020 but are increasingly staying away from debt markets now as rates rise. Issuance of BBB-rated bonds fell 36% in 2021 and is down 37.1% year over year in 2022 as of March 22. Eventually, the mass of debt will have to be repaid or, more likely, refinanced at whatever are the prevailing rates. The good news is that companies have time on their side. Typically, the maturity wall for non-investment-grade-rated companies peaks at four-to-five years out, but in 2021 that was extended until 2028, when $573 billion in debt is set to mature, according to Ratings.

U.S. companies took advantage of low rates and quantitative easing in 2020 and 2021 to take on cheap debt and refinance old, costlier debt. In doing so, they reduced their leverage and pushed out the maturity wall of their outstanding bonds.

The rate of fallen angels has been historically low in the last decade, with companies supported by access to cheap finance. After a mini-spike in COVID-19-affected 2020, the number of U.S. fallen angels fell to an eight-year low of 12 in 2021.

In recent history, rising corporate bond spreads have dealt setbacks to the Fed's plans. The Fed halted policy tightening in early 2019 after corporate credit spreads widened by 50 bps, eventually cutting rates when the pandemic arrived, while a spike in spreads in the aftermath of a rate hike in late 2015 delayed further increases by 12 months.

Ongoing higher borrowing costs pose even greater challenges to heavily indebted and vulnerable companies sitting just above junk rating status. Nonfinancial corporations ended 2021 with a record $11.65 trillion in debt.

In the past, the Fed has paused rate hikes in the face of wider credit spreads, which translate to slower economic growth and higher borrowing costs for companies. This time around, the Fed has less reason to alter its course, given low bond yields, companies' healthy corporate balance sheets and a big reduction in corporate demand for debt.

In addition to spreads, the relative performance of different tiers of debt are important barometers to track as well, according to Dan Sorid, Citigroup Inc.’s head of U.S. investment grade credit strategy. If companies with lower credit ratings start performing much worse than those with higher ratings, it’s another sign that the flow of credit might be getting too constrained.  

The average investment-grade U.S. corporate bond traded with 109 basis points of extra interest above Treasuries on Monday, according to Bloomberg index data. When that spread reaches closer to 150 basis points, the Fed might start to get worried, according to analysts and investors informally polled by Bloomberg.  #lazy-img-384027322:before{padding-top:56.25%;}

Commercial paper—short-term corporate loans that form the core of prime money-market fund holdings—rarely trades in normal times since it is repaid relatively quickly. But when investors are asking for cash back, money-market funds have to sell that paper. In times of stress, banks, which broker commercial paper deals, don’t want to step in and help. Banks are less willing or able to broker trades because of the wave of reforms and demands for higher capital directed at them after the 2008 crisis. These reforms made banks much less vulnerable in March 2020, but put more of the strain of sudden demands for liquidity on market-based finance, such as money funds, instead.

For now, there is so much money sloshing around the financial system that a repeat of 2020’s dash for cash seems a distant prospect. Also, investors have further reduced their exposure to prime funds. However, the volume of spare cash in the financial system could drop quickly, with the economy reopening and people starting to spend their savings, as the U.S. government sells more Treasurys and the Fed starts to think about ending its vast bond-buying programs.

That is what happened in March 2020. In the U.S., investors rushed to pull money from so-called prime money funds, which own lots of corporate short-term debt. They instead sent their cash to safer government money funds, which hold exclusively government-backed debt. Assets in prime funds fell by nearly one-fifth to $652 billion by the end of March from $791 billion a month earlier, according to the Investment Company Institute, sapping companies of a key source of funding.

Money funds offer investors instant access to their cash, and invest in short-term debt issued by governments and companies that will be repaid somewhere between a few days and a few months. If lots of investors want their money back at the same time, that can cause problems because fund managers might need to sell this short-term debt—and there are typically few buyers.

The Fed’s antidote to repo market dysfunction is stepping in as a key transactor, with the U.S. central bank conducting both repo and reverse repo operations to keep the federal funds rate in its target range. That process is spearheaded by the New York Fed, which leads the U.S. central bank’s open market operations.When the repo market saga first began last fall, the New York Fed in September 2019 injected $53 billion worth of cash in exchange for short-term Treasury bills, its first overnight repo market operation since the financial crisis. Those purchases were then listed as assets on the Fed’s balance sheet until they’re paid back.And when the coronavirus crisis came along and Treasury markets started seizing up even more, the Fed’s intervened in a way that would make those operations look like breadcrumbs. On March 12, 2020, the Fed said it would offer $500 billion in a three-month operation. The following day, the Fed planned to inject $1 trillion more, split between a three-month operation and a one-month operation. It was prepared to offer up to $1 trillion every subsequent week.“These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” the New York Fed said in a statement.In more extreme circumstances, the Fed can also decide to start organically growing its balance sheet again to help calm the dysfunction. That’s exactly what it did in October 2019, long before the coronavirus pandemic was on anyone’s mind, when U.S. central bankers feared that they’d taken their balance sheet drawdown too far.

Just as quantitative easing (Q.E.) increases the amount of bank reserves in the system, the opposite process of selling off assets vacuums them out. All in all, the Fed took about a trillion dollars out of the system. The repo market’s dysfunction showed that officials might’ve taken the process too far.

All of that worked to cause a cash crunch, and the repo rate soared — reaching as high as 10 percent intraday on Sept. 17. In other words, banks didn’t want to part with their cash for anything lower than that rate. It pushed up the federal funds rate along with it, which was supposed to be trading in a target range between 2-2.25 percent at the time. The Fed was also days away from making a second rate cut.

The Fed’s involvement in the repo market as we know it can be traced back to Sept. 16, 2019, when a traffic jam occurred at the intersection of cash and securities. Experts say that piles of cash flowed out of the system because corporate tax payments came due. That happened right as new Treasury debt settled onto the markets. Financial institutions wanted to borrow cash to purchase those securities, but supply didn’t match those demands.

The first quarter data show that the net leverage of the median non-financial company in the US IG and HY index increased to a record high of 2.8x and 4.4x respectively. Furthermore, a bigger hit to earnings will come in the second quarter as economic disruption peaked in April and May. It will be some time before it is possible to gauge the full damage on corporate balance sheets.

Moody’s expects the US HY default rate to peak at 12% at the end of 2020. This forecast implies a significant volume of defaults in the second half of 2020. Investors can find some comfort in the fact that spreads have normally peaked well before defaults, as markets tend to look forward to the potential for improving prospects of companies. An exception to this rule is the early 2000s recession when credit spreads peaked four months after defaults in October 2002. By that time, the US economy was already a year into recovery. The current situation bears some similarities, as the default cycle follows a long period of uninterrupted growth and large build up in corporate debt.

On 23 March, the Federal Reserve (Fed) announced that is would start purchasing corporate bonds for the first time ever, both in the primary (direct from the issuer) and the secondary market. Credit spreads peaked on the day of the announcement. In a second announcement on 9 April, the Fed stated that it will also buy HY bonds that had an investment grade rating before 22 March and HY exchange-traded funds (ETFs). The irony is that the newly-created corporate bond facilities only became operational in mid-May and as of 12 June , the Fed has purchased just $5.5 billion of IG and HY ETFs, a drop in the ocean compared to the $750 billion maximum size of the programme. Instead, investors, emboldened by the implicit central bank backstop, have done the job for the Fed.