ECB makes “unprecedented” move into corporate debt purchasing
by Kylene Casanova
In a move that the Financial Times calls “truly unprecedented”, the European Central Bank (ECB) has today begun its corporate sector purchase programme (CSPP). The CSPP is part of the existing asset purchase programme, which aims to strengthen the pass-through of asset purchases to the real economy – with the overall goal of boosting growth and inflation past the 2 per cent mark.
The Financial Times reports that this could be “the central bank’s most market disruptive intervention yet”. FTalphaville reporter Izabella Kaminska writes: “Speculation also abounds whether the programme might encourage a mad rush of incorporations within the Eurozone as international companies seek to refinance their increasingly expensive dollar debt into bargain basement euro-denominated borrowings.”
The ECB has also issued a Q&A on the programme, which explains that the CSPP purchases will be carried out by six national central banks acting on behalf of the Eurosystem, while the ECB will coordinate the purchases. The national central banks conducting the purchases are Banco de España, Banca d’Italia, Banque de France, Deutsche Bundesbank, Nationale Bank van België/Banque Nationale de Belgique, and Suomen Pankki/Finlands Bank.
A list of the bonds purchased under the CSPP will be published weekly on Mondays from 18 July and securities lending will begin six weeks after the start of the CSPP (8 June).
The FT also points out that the CSPP will have other consequences for financial markets and will provide a low-cost source of euro-denominated funding for corporates: “the ECB’s provision of cheap euro-denominated liquidity to corporates achieves two things. On one hand it helps to keep deflation at bay. On the other hand it stands to wean European corporations off dollar funding solutions by incentivising them to fund in euros on a much more comprehensive way (albeit on much stricter and transparent terms than was ever the case for the eurodollar market).”
CTMfile take: Whether it will steer Europe-based corporates away from dollar funding remains to be seen, but the CSPP is undoubtedly good news for companies looking for financing.
Like this item? Get our Weekly Update newsletter. Subscribe today
I remain skeptical and fail to see how the purchase of corporate bonds by the ECB will stoke inflation. What are Mr. Draghi’s intentions should oil prices continue to move up and inflation returns? Will we move back to positive interest rates quickly enough?
And what about the European investor? His last chance of obtaining something like a yield is disappearing now too. European investors are already feeling ripped off by Mr. Draghi.