Asset managers are front running the Fed. The Fed hasn’t even bought junk corporate bonds yet. They’ve only signaled that they are willing to do so, which immediately sent the price of junk corporate bond ETFs skyrocketing.
If the Fed steps in to save this market they’ll overpay for debt from companies included in these bond ETFs that will likely go under anyway.
It also creates a moral hazard situation where poor performing companies can raise cheap debt because everyone now thinks the Fed will step in and guarantee it.
If the Fed steps in to save this market they’ll overpay for debt from companies included in these bond ETFs that will likely go under anyway.
It also creates a moral hazard situation where poor performing companies can raise cheap debt because everyone now thinks the Fed will step in and guarantee it.