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Corporate debt costs drop as ECB spends €13.2bn on bond purchase programme

The spread between yields on bonds issued by non-financial corporations has seen a significant contraction, following the announcement of the ECB's corporate sector purchase programme. This was announced today in an economic bulletin from the ECB.

As part of the Eurosystem’s asset purchase programme (APP), the European Central Bank (ECB) announced its corporate sector purchase programme (CSPP) on 8 June 2016. Since then, the ECB has been buying euro-denominated, investment grade bonds from non-financial corporates established in the euro area. Between the start of the programme and 29 July, the Eurosystem has bought €13.2 billion of non-bank corporate bonds.

Seven per cent of the purchases were made in the primary market and 93 per cent in the secondary market. The purchases have so far been spread over 458 different bonds, most of which have a value less than €10 million, and issued by 175 different issuers. Yields of the purchased bonds have ranged from around -0.3 per cent to above 3 per cent, with just above 20 per cent of the purchases being made at negative yields above the ECB’s deposit facility rate of -0.4 per cent. As shown in the chart below, 28 per cent of the corporate issuers were in the consumer goods sector.

Bond purchasing could continue until March 2017

The ECB states that, under the APP, purchases will continue until the end of March 2017 and may be extended if necessary to achieve inflation rates of just under 2 per cent in the medium term.

The ECB has bought debt from companies including Danone, Glencore, Mapfre, Deutsche Lufthansa and Telecom Italia, according to Bloomberg.

CTMfile take: In June, the FT called the ECB's corporate bond purchase programme “truly unprecedented” and we are now seeing some of the effects of the programme that will benefit corporates. As well as keeping the cost of borrowing lower, it is also enabling eurozone-based companies to avoid dollar-denominated debt.

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Financing Short-Medium Term Deficits

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