The Federal Reserve said on Friday that it had hired Pimco and State Street to manage its purchases of commercial paper, one of the major programmes in its effort to keep money flowing to corporate America during the coronavirus pandemic.
Pimco, one of the largest bond managers in the world, will act as the investment manager for the commercial paper funding facility while State Street has been retained as the custodian and accounting administrator for the programme, the central bank said.
The $1.1tn commercial paper market, like other parts of the short-term funding markets, was hard hit by investors’ dash to cash and a reduction in liquidity as the pandemic worsened. Interest rates soared in late February and early March, Fed data showed.
Companies that use commercial paper to fund day-to-day operations turned to other financing sources given the turmoil. The market has contracted by $28bn since March 11.
The announcement of the programme and a related effort by the US central bank to shore up money market funds, one of the largest buyers of commercial paper, has helped ease pressures for the highest quality US companies. However, for groups with slightly lower credit ratings, borrowing costs remain elevated, leading to calls for the Fed to act speedily to make the facility operational.
The appointment of managers comes just over a week after the Fed tapped BlackRock, the world’s largest asset manager, to oversee another emergency funding programme which will purchase billions of dollars in bonds, mortgage-backed securities and fixed-income exchange traded funds.
Pimco and State Street are reprising their roles from the 2008 financial crisis, when both were hired by the Fed to run a similar commercial paper funding facility.
The Fed said it had selected Pimco “after considering its knowledge and experience in the commercial paper market and in credit risk management”.