Looking at both public equity and corporate bond markets, this chapter studies how capital markets were able to respond to the COVID‑19 pandemic throughout 2020 and the extent to which the non‑financial corporate sector had access to market-based financing. Following an initial contraction at the onset of the crisis, the use of capital markets increased significantly overall compared to historical averages and with notable differences between both countries and industries. The chapter also examines the extraordinary monetary policy measures taken by central banks around the world to respond to the crisis, in particular with regard to corporate bond purchase programmes.
The Future of Corporate Governance in Capital Markets Following the COVID-19 Crisis
Corporate Governance
4. Capital market financing during the COVID‑19 crisis
Abstract
Access to capital market-based financing in the immediate wake of the 2008 financial crisis gave many corporations the financial resilience that helped them overcome a temporary downturn and still meet their obligations to employees, creditors and suppliers. When the COVID‑19 pandemic broke out in 2020, it was also of pressing importance that corporations had access to capital markets to mitigate liquidity shortages and avoid defaults and bankruptcies. In a longer‑term perspective, structural policies that facilitate efficient and affordable market‑based financing of viable companies will be key to strengthen companies’ long‑term resilience and help them endure future shocks of a similar nature.
When discussing long‑term implications of the current crisis, it is important to understand how capital markets were able to react to the COVID‑19 shock and how related central bank policies affected their functioning. This chapter provides some key indicators on the non‑financial corporate sector’s use of public equity and corporate bond markets throughout 2020. It analyses the short-term impact of the COVID‑19 crisis and provides an overview of central bank policies related to corporate bond markets.
4.1. Public equity markets
In 2020, the total amount of capital raised by non‑financial companies through initial public offerings (IPOs) and secondary public offerings (SPOs) - follow‑on offerings by already listed companies - reached its highest value since 1990 at USD 826 billion. However, during the first quarter of 2020, as the COVID‑19 outbreak resulted in high market volatility and multiple uncertainties, the non‑financial corporate sector’s use of primary public equity markets decreased. The total amount of capital raised by companies during the first quarter of 2020 was considerably lower than the previous 5‑year average (Figure 4.1). This downturn was reversed during the second quarter when the activity in equity markets rebounded. The third quarter of 2020 saw a peak in capital‑raising activity compared to the previous 5‑year average, mainly driven by SPOs.
At a country and regional level, the first quarter decline was most pronounced in the United States, where the total amount of equity raised fell by 40% to USD 20 billion compared to the USD 34 billion average for the same period over the previous five years. The decline for Europe was also substantial, at 27%, while Chinese capital raising activity was affected to a lesser extent with a decline of 13% during the same period. Conversely, in the second quarter of 2020, activity in the United States more than doubled compared to the same period over the previous 5‑year average, reaching USD 90 billion worth of equity raised through IPOs and SPOs. In Europe and China, the trend was also reversed following the second quarter, with Chinese capital raising activity reaching USD 92 billion in the third quarter of 2020. Over the entire year, non‑financial companies from China, the United States and Europe raised equity capital totalling USD 232 billion, USD 225 billion and USD 150 billion respectively. In particular, companies from the United Kingdom accounted for 26% of total European proceeds, at USD 39.5 billion. Japanese, Brazilian and Australian companies were also important actors raising USD 45.3 billion, USD 29.3 billion and USD 28.7 billion, respectively.
With respect to industries, the total proceeds raised during the first quarter of 2020 were lower for all sectors, except for healthcare, consumer non‑cyclicals and telecommunication services. The largest contraction in fundraising through public equity markets was in the utilities, energy and consumer cyclicals industries. By contrast, in the second quarter, all industries except for energy and basic materials, raised significantly more capital than the previous 5‑year average. Notably, the healthcare industry raised USD 50 billion globally in the second quarter, compared to an average of USD 21 billion over the 2015‑2019 period. In the third quarter every industry, except energy, raised more capital than in the previous five years. In the fourth quarter, six out of nine did.
Figure 4.1. Total amount of capital raised by non‑financial companies in public equity markets in 2020
Source: OECD Capital Market Series dataset, Thomson Reuters Eikon, see Annex for details.
A closer look at developments on a monthly basis shows that the IPO activity almost came to a halt in March 2020, when only six European companies and one US company went public, amounting together to a modest USD 100 million (Figure 4.2). By contrast in China, 29 non‑financial companies raised USD 2.8 billion of funds, accounting for 41% of global equity raised in March 2020. In May, the IPO activity in Europe returned to normal with a total amount of USD 3.6 billion. In the United States, the rebound was particularly strong in June 2020 when 19 non‑financial IPOs raised a record amount of USD 10.6 billion. Chinese non‑financial companies showed a more stable trend in IPO activity during the first six months of 2020. Globally, in the second half of 2020, the IPO activity peaked and was almost twice as the 2015‑2019 average. This trend was particularly marked in China and the United States. In December 2020 alone, companies from those countries raised an exceptional USD 13.4 billion and USD 11.9 billion through IPOs, respectively. Importantly, while IPO activity in Japan throughout 2020 was weak, in December 2020, 26 companies went public raising USD 1.2 billion.
Figure 4.2. Initial public offerings (IPOs) by non‑financial companies in 2020
Source: OECD Capital Market Series dataset, see Annex for details.
Overall in 2020, technology and healthcare were the two industries in which companies raised the most capital, accounting for 24% and 23% of the total amount raised through IPOs respectively (Figure 4.3). US technology companies raised a record amount of USD 24.4 billion, accounting for over half of the global proceeds raised by technology companies. Chinese technology companies followed, raising USD 14.6 billion, corresponding to 30% of the global proceeds. Similarly, US and Chinese healthcare companies raised USD 19.3 billion and USD 15.9 billion respectively. Moreover, industrials companies raised a global amount of USD 35.5 billion during 2020, of which Chinese industrials companies accounted for 60%.
Focusing on monthly IPO activities, in the first two months of 2020, healthcare companies raised more equity through public equity markets than the January and February averages of the previous five years. As a matter of fact, the amount of equity capital raised by healthcare companies almost tripled in January and almost quadrupled in February compared to their 5‑year averages. However, in March 2020 no industry, except for industrials and energy, reached their 5‑year average (Figure 4.4). In June 2020, the healthcare, technology, consumer cyclicals and basic materials industries surpassed the 2015‑2019 averages. For instance, healthcare IPOs raised a total amount of USD 6.6 billion compared to the June average of USD 2.4 billion over the 2015‑2019 period. Furthermore, in the second half of 2020, given the global steady growth in company IPOs, all industries except for energy, telecommunications services and utilities, surpassed their 5‑year averages by large margin. Notably, in September 2020, USD 13.4 billion were raised by technology companies, compared to the USD 2 billion average over the 2015‑2019 period.
Figure 4.3. IPOs by non‑financial companies in 2020 by country and industry
Source: OECD Capital Market Series dataset, see Annex for details.
Figure 4.4. Industry distribution of IPOs by non‑financial companies
Source: OECD Capital Market Series dataset, see Annex for details.
In the period immediately following the 2008 financial crisis, already listed non‑financial companies extensively used public equity markets to raise additional equity capital through secondary offerings (SPOs). This pattern seemed to repeat itself in 2020, when already listed non‑financial companies raised a total of USD 626 billion via SPOs , the highest amount of the last three decades (Figure 4.5). Half of that amount was raised by US and Chinese non‑financial companies, which raised USD 169 billion and USD 149 billion respectively. Similarly, European non‑financial companies raised about USD 130 billion through SPOs. The monthly distribution of the proceeds reveals that in March 2020, the proceeds raised through SPOs globally were well below the past 5‑year average, while the monthly amount of capital raised, on average almost doubled the 5‑year averages between May and December 2020. Globally, more than 80% of the total capital raised through SPOs was between May and December 2020.
Figure 4.5. Secondary public offerings (SPOs) by non‑financial companies in 2020
Source: OECD Capital Market Series dataset, Thomson Reuters Eikon, see Annex for details.
Globally, the healthcare, industrials, technology and consumer cyclicals industries together accounted for almost 70% of all the SPO proceeds in 2020 (Figure 4.6). In the United States, healthcare and technology were the top two industries raising most of the equity capital through SPOs, with shares corresponding to 37% and 15%, respectively. The most active industries in Europe and China were industrials and consumer cyclicals, respectively, with a share around 20% each.
Further, the comparison between SPOs monthly distribution with the 5‑year averages shows that the global SPO proceeds in May 2020 were primarily driven by increases in the healthcare, industrials and technology industries and, in June 2020, by telecommunications services and consumer cyclicals. Moreover, in December 2020, the capital raised by technology companies was almost five times the previous 5‑year average (Figure 4.7).
Figure 4.6. SPOs by non‑financial companies in 2020 by country and industry
Source: OECD Capital Market Series dataset, Thomson Reuters Eikon, see Annex for details.
Figure 4.7. Industry distribution of SPOs by non‑financial companies
Source: OECD Capital Market Series dataset, Thomson Reuters Eikon, see Annex for details.
4.2. Corporate bond markets
Since the 2008 financial crisis, non‑financial companies have raised an exceptionally large amount of debt in the form of corporate bonds compared to the previous decade. Figure 4.8 in Panel A presents the total amount of proceeds that non‑financial companies received through corporate bond issues in each year over the past two decades. Since the 2008 financial crisis there is a significant and lasting increase in the issuance of corporate bonds. Globally, annual corporate bond issuance doubled from an average of USD 890 billion before the 2008 financial crisis since 2000 to an average of USD 1.87 trillion in the period between 2008 and 2020. Notably, 2020 recorded a peak in terms of amount issued, USD 2.9 trillion.
As a result of a decade‑long build‑up of corporate bond debt since the 2008 global financial crisis, the world closed 2020 with a record level of USD 14.8 trillion in outstanding debt in the form of corporate bonds (Figure 4.8, Panel B). Of this amount, USD 6.7 trillion was issued by US companies, USD 3.0 trillion by European companies, USD 2.2 trillion by Chinese companies and USD 0.6 trillion by companies in Japan. Together, these countries made up 84% of the global outstanding stock of corporate bonds. In addition to the record volumes, the decline in the overall corporate bond quality in 2020 continued to be significant. Indeed, the share of BBB rated bonds, which is the lowest quality of bonds that are included in the investment grade category, remained high in 2020 at 51.3% (Figure 4.8, Panel C). Similarly, the corporate bond index continued to show signs of deterioration. Using information for all rated bonds that have been issued by non‑financial companies worldwide, Panel D plots the overall quality index for each year since 1980. The index showed a slight improvement in 2020, however, it still remained under 14, which corresponds to a BBB+ rating. This means that in 2020, the average corporate bond issued had a rating of approximately BBB.
Figure 4.8. Global corporate bond landscape
Source: OECD Capital Market Series dataset, Thomson Reuters Eikon, see Annex for details.
Figure 4.9 presents corporate bond issuance amounts for each month in 2020 at the global and regional levels. It also provides a comparison with the 2015‑2019 issuance average for the corresponding months. During the first two months of 2020, across all four regions, bond issuance by non‑financial companies remained in line with their monthly averages over the past five years. In March 2020, as lockdowns began to be implemented, economic uncertainty increased sharply and companies faced liquidity challenges, and as a result, many companies turned to the corporate bond market. This was not only motivated by a need to meet immediate cash flow obligations but also by a wish to build a cushion for future economic uncertainty and to push out debt maturities.
Figure 4.9. Corporate bond issuance by non‑financial companies in 2020, by country/region
Source: OECD Capital Market Series dataset, Thomson Reuters Eikon, see Annex for details.
During March 2020, global corporate bond issuance increased to USD 331 billion, significantly higher than the previous 5‑year average for March of USD 217 billion. Notably and in real terms, this was the highest monthly global issuance of corporate bonds in the past two decades. The increase was driven mainly by US non‑financial companies who issued an unprecedented monthly amount of USD 192 billion of corporate bonds, more than double the previous 5‑year average for March. Although from a lower level, the issuance by Chinese companies also increased significantly by 44% in March 2020, compared to the previous 5‑year average. In sharp contrast, however, issuance by non‑financial European companies in March 2020 fell below the average issuance during the previous 5 years (Figure 4.9, Panel C).
From March 2020, and in addition to the expansion of corporate bond purchase programmes by major central banks outlined below, the US Federal Reserve and the Bank of England (BoE) lowered their interest rates to address some of the effects of the pandemic. The US Federal Reserve lowered its interest rates by 50 basis points on 3 March 2020 and by a further 100 basis points on 15 March 2020 to between 0 and 0.25% (Federal Reserve, 2020[1]); (Federal Reserve, 2020[2]). The BoE reduced its policy rate from 0.75% to an all‑time low of 0.1% in two steps on 11 and 19 March 2020 (BoE, 2020[3]); (BoE, 2020[4]). As the impacts of the central bank policies became more tangible in the second quarter, corporate bond issuance rose above the previous 5‑year average in all markets reported in Figure 4.9. In April 2020, the global and US issuance records set in March 2020 were exceeded once again. As a result, a total amount of USD 1.74 trillion of corporate bond debt was raised globally in the first half of 2020. In the second half of 2020, corporate bond issuance remained at higher levels than the 2015‑2019 averages, although to a lesser extent compared to the sustained activity observed in the second quarter of 2020. Proceeds raised during the July‑December 2020 period totalled USD 1.16 trillion compared to an average of USD 907 billion during the previous five years. As a result of this surge in corporate bond issuance, the global outstanding stock of non‑financial corporate bonds reached USD 14.8 trillion by the end of 2020, up from USD 13.7 trillion at the end of 2019.
Although the general picture in Figure 4.9 above suggests that overall, corporate bond markets continued financing companies during the health crisis, a look at the credit ratings of corporate bond issuance in Figure 4.10 points to some challenges. It is important to note that these are partly related to central bank responses to the pandemic, and the fact that eligibility for central bank corporate bond purchases typically requires having an investment grade rating either at the time of purchase or at a certain cut‑off date at the onset of the pandemic.
With the announcements by major central banks in March 2020 that they would buy large amounts of corporate bonds from the primary and secondary markets, Figure 4.10 shows that companies with A or higher ratings issued a record amount of USD 165 billion in March 2020. This was more than three times the average amount of A and higher rated corporate bonds issued in the same month during the past five years. BBB rated issuance, on the other hand, saw only a modest increase of 20% in March 2020 relative to the past 5‑year average, reaching a total amount of USD 76 billion. As a whole, investment grade issuance stayed robust in the second quarter of 2020, always far exceeding the historical monthly averages. During the third and fourth quarters of 2020, although BBB rated corporate bonds totalled USD 286 billion against an average of USD 226 billion in the 2015‑2019 period, A or higher rated ones remained at similar levels compared to the previous 5‑year average, at around USD 227 billion.
Figure 4.10. Corporate bond issuance by non‑financial companies in 2020, by credit quality
Source: OECD Capital Market Series dataset, Thomson Reuters Eikon, see Annex for details.
In stark contrast to the high levels of investment grade issuance, the total issuance by non‑investment grade companies decreased sharply in March 2020. In total, only USD 5 billion was raised, corresponding to less than 13% of the historical average. However, with the help of subsequent central bank support measures addressed specifically at this segment, non‑investment grade issuance reverted back to its average in April and exceeded it in the rest of 2020. Specifically, following the announcement of the US Federal Reserve on 9 April 2020 regarding the inclusion of fallen angels (companies that have lost their investment grade rating) into the scope of the Primary Market Corporate Credit Facility (PMCCF) and Secondary Market Corporate Credit Facility (SMCCF) and the inclusion of ETFs which invest in US high‑yield corporate bonds into the SMCCF, US non-investment grade non‑financial issuers were able to raise USD 37 billion in April 2020. Moreover, on 22 April 2020, the ECB announced that it would also accept fallen angel bonds that had lost their investment grade credit rating after 7 April 2020 as collateral until September 2021, as long as their rating remained at or above BB (ECB, 2020[5]). This move was an important stimulus as non‑investment grade issuers from Europe issued only USD 196 million in March 2020 and USD 216 million in April 2020. Following the ECB’s announcement, issuance by European non‑investment grade companies reached amounts comparable to historical averages for May and June 2020.
As a result of this rebound in non-investment grade issuance in the second quarter, globally the total amount of non‑investment grade issuance in the first half of 2020 surpassed the previous 5‑year average. However, the share of lower quality non‑investment grade issuers within the non‑investment grade category dropped markedly compared to previous years. BB rated bonds, which is the highest bond quality included in the non‑investment grade segment, accounted for a record 67.5% of the total non‑investment grade issuance in the first half year of 2020, which was significantly higher than even the 58.4% peak reached in 2019.
Figure 4.11 provides further details on the changing composition of the non‑investment grade segment. It compares the rating distribution of non‑investment grade issuance in the four months from March to June 2020 with its distribution in the same four months of 2019. As shown in Panel A, the share of BB+ rated corporate bond issues in total non‑investment grade issuance increased from 22.9% in the period from March to June 2019 to 24.6% in the same four months of 2020. The portion of BB rated bonds increased more sharply from 15.9% to 25.0% and BB‑ rated bonds increased from 18.3% to 23.7%.Conversely, the share of corporate bonds rated B+ or lower decreased with B rated bonds experiencing the largest drop from 16.4% to 8.1%. Similar trends can be seen when issuance in the first two months of 2020 is compared to issuance in the subsequent 4‑month period (Rennison, 2020[6]). The observations from Figures 4.10 and 4.11 seem to suggest that the support from central banks has helped the non‑investment grade bond market recover, but that it remained reserved primarily for the highest quality issuers within the non‑investment grade segment over the first several months.
Figure 4.11. Composition of issuance in non‑investment grade category
Source: OECD Capital Market Series dataset, Thomson Reuters Eikon, see Annex for details.
With respect to the industry distribution of corporate bond issuance, Figure 4.12 reports that all industries have continued to access the bond market after the pandemic hit and have reached issuance amounts that surpassed those of the past 5 years. The industrials, consumer cyclicals, technology and telecommunications industries experienced considerable increases in 2020. The industry with the lowest increase in comparison to its historical average was the healthcare industry. Due to the relative resilience of this industry to a health crisis, it is possible that healthcare companies, in contrast to companies in other industries, did not feel pressured to issue bonds to mitigate potential earnings losses. Also, the healthcare companies were among the most active issuers of equity capital, raising USD 167 billion through IPOs and SPOs during 2020 well above the 5‑year average.
Figure 4.12. Corporate bond issuance by non‑financial companies in 2020 by industry
Source: OECD Capital Market Series dataset, Thomson Reuters Eikon, see Annex for details.
4.2.1. Increase in corporate bond purchases by central banks
In response to the pandemic, the European Central Bank (ECB), the Bank of England (BoE) and the Bank of Japan (BoJ) have all expanded their corporate bond purchase programmes and the US Federal Reserve has launched a corporate bond purchase programme for the first time. Figure 4.13 shows the evolution of the corporate bond holdings of leading central banks.
The ECB started buying corporate bonds in June 2016 under its “Corporate Sector Purchase Programme” (CSPP). As part of this programme, selected central banks in the Eurosystem can purchase investment grade euro‑denominated bonds issued by non‑bank corporations established in the euro area (ECB, 2016[7]). The net purchases under the CSPP came to an end in December 2018, and as seen in the figure, the outstanding amount of corporate bonds held through the CSPP levelled off at around EUR 178 billion in 2019, representing around 1.5% of GDP. In November 2019, the ECB resumed its purchases, which were later accelerated and expanded in response to the pandemic. Specifically, on 12 March 2020, the ECB decided on a temporary envelope of additional net asset purchases of EUR 120 billion, to be used until the end of the year (ECB, 2020[8]). Shortly thereafter, on 18 March 2020, the ECB introduced its EUR 750 billion Pandemic Emergency Purchase Programme (PEPP), an asset purchase programme of private and public sector securities, initially intended through end‑2020. Eligible issuers were defined according to the same criteria as under the CSPP (ECB, 2020[9]). On 4 June 2020, the size of the PEPP was expanded by EUR 600 billion to EUR 1.35 trillion and the duration of the programme was extended to at least June 2021 (ECB, 2020[10]). On 10 December 2020, the size of the PEPP was further increased to EUR 1.85 trillion and the horizon for net purchases under the programme was extended to at least the end of March 2022 (ECB, 2020[11]). As of the end of July 2020, EUR 17.6 billion of corporate bonds and a further EUR 34.8 billion of commercial papers had been purchased under the PEPP. This was in addition to the corporate bond and commercial paper holdings under the CSPP, which increased from EUR 195 billion in February to EUR 224 billion in July 2020 and to further EUR 250 billion by December 2020. By the end of the year, PEPP and CSPP holdings together reached to around EUR 292 billion - accounting for 2.6% of GDP.
The Bank of Japan (BoJ) has a longer history of corporate bond purchases. A corporate bond purchase programme that was introduced in February 2009 and ran until December 2009 was later resumed under the “Asset Purchase Program” which was launched in October 2010. Under this programme, investment grade corporate bonds were deemed eligible for purchase (BoJ, 2010[12]). In April 2013, the BoJ announced its decision to purchase and continuously hold up to JPY 3.2 trillion worth of corporate bonds and JPY 2.2 trillion in corporate papers (BoJ, 2013[13]). As seen in Figure 4.13, this level was sustained up to March 2020. In reaction to the COVID‑19 outbreak, on 16 March 2020 the BoJ decided to enhance monetary easing through, among other measures, facilitating corporate financing by increasing the upper limit for holding commercial papers and corporate bonds by JPY 2 trillion to JPY 7.4 trillion in total (BoJ, 2020[14]). On 27 April 2020, the BoJ decided to further increase the corporate bond and commercial paper purchase facility to a total of about JPY 20 trillion (BoJ, 2020[15]). As of the end of June 2020, BoJ holdings of corporate bonds stood at JPY 4.1 trillion or 0.74% of GDP, and increased further to JPY 6.4 trillion or 1.2% of GDP in December 2020. The central bank intends to conduct additional corporate bond and commercial paper purchases until the end of September 2021 with an upper limit on the amounts outstanding of JPY 20 trillion (BoJ, 2020[16]).
Figure 4.13. Central banks’ holdings of corporate debt securities
Note: The holdings under PEPP are not disclosed monthly. Based on the months for which data were disclosed, the other months’ data were estimated using linear interpolation.
Source: ECB, Bank of Japan, Bank of England, US Federal Reserve, OECD Statistical Data, World Bank, US Bureau of Economic Analysis.
The BoE was also engaged in a corporate bond purchase programme prior to the pandemic, albeit for a shorter period and with a smaller dedicated budget compared to the BoJ and the ECB. The purchases under BoE’s “Corporate Bond Purchase Scheme” (CBPS) began in September 2016. Eligible corporate bonds for this scheme had to be issued by companies that make a material contribution to the UK economy, be denominated in GBP and rated investment grade. The purchases under CBPS ceased when the GBP 10 billion target was reached in April 2017, after which time this level was sustained by reinvesting the cash received from maturing bonds (BoE, 2016[17]); (BoE, 2017[18]). In March 2020, the bank decided to increase its holdings of UK government bonds and sterling non‑financial investment grade corporate bonds by GBP 200 billion to a total of GBP 645 billion. In November 2020, it was decided to maintain the stock of corporate bond purchases at GBP 20 billion (BoE, 2020[4]); (BoE, 2020[19]). As seen in the figure above, the corporate bond holdings of the BoE also increased, from GBP 9.8 billion in March to GBP 15.9 billion at the end of June 2020 and to GBP 20 billion by December 2020 reaching 0.95% of GDP.
The US Federal Reserve launched a corporate bond purchase programme for the first time on 23 March 2020 in response to the COVID‑19 crisis. Specifically, it announced the establishment of two facilities to support credit to large employers: (i) the Primary Market Corporate Credit Facility (PMCCF) to purchase new bonds and loans from investment grade companies and (ii) Secondary Market Corporate Credit Facility (SMCCF) to purchase corporate bonds in the secondary market issued by investment grade US companies and US‑listed ETFs whose investment objective is to provide exposure to US investment grade corporate bonds (Federal Reserve, 2020[20]). Importantly on 9 April 2020, the scope of the PMCCF and SMCCF was broadened to include corporate bonds issued by companies that had lost their investment grade rating after 22 March 2020 but which continued to be rated at least BB-. Furthermore, SMCCF could also invest in those ETFs whose primary investment objective is exposure to US high‑yield corporate bonds. The combined size of PMCCF and SMCCF would be up to USD 750 billion (Federal Reserve, 2020[21]); (Federal Reserve, 2020[22]). ETF and corporate bond purchases under SMCCF began on 12 May 2020 and 16 June 2020, respectively. As of 31 December 2020, the Federal Reserve’s holdings of corporate bond ETFs and of individual corporate bonds under the SMCCF amounted to USD 8.78 billion and USD 5.54 billion, respectively. The corporate credit facilities ceased purchasing assets as of 31 December 2020 (Federal Reserve, 2021[23]).
The one common eligibility criterion that the BoJ, the ECB and the BoE all adopt is the requirement that the corporate bonds have an investment grade rating. Only the US Federal Reserve has taken the unprecedented step of also investing in high‑yield corporate bond ETFs and purchasing corporate bonds that have become fallen angels. The SMCCF followed an indexing approach, whereby its corporate bond purchases are made based on a broad, diversified market index, which includes all the bonds that have been issued by US companies and that satisfy the facility's criteria, for example with respect to rating and maturity. As of 31 December 2020, BB rated issuers made up 3.1% of the total corporate bond holdings of the US Federal Reserve (Federal Reserve, 2020[20]); (Federal Reserve, 2021[24]).
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