In part one of this piece, I pointed out what ETFs the Federal Reserve had purchased as of May 19th. Since then, the Fed has purchased more of these ETFs and began buying corporate bonds directly, not through an ETF.
In this piece, we will look at whether or not you should follow the Fed's footsteps and buy these funds or other bond ETFs, or whether you should find your own path and buy non-bond ETFs in the days, weeks, and months to come.
The first issue with the Fed buying bond ETFs is that the demand for said ETFs likely rose when the Fed was buying. This is simply a supply and demand issue, especially when the bond ETFs wasn't able to issue new shares. Issuing new shares can only be done when the fund was able to purchase more bonds to bundle into its ETF. And since the Fed was dumping large amounts of money into the market in a rather short period of time, the likelihood that these funds where all able to increase their asset bases are not high.
So, the Fed has probably already pushed the price of these ETFs higher than where they would typically be trading. This is not good for new investors. Continue reading "The Fed Is Buying These ETFs - Part 2"