ECB commences corporate bond buying

corporate bonds

The European Central Bank (ECB) has formally launched its much-awaited corporate bond buying programme, which was unveiled by its president, Mario Draghi, back in March.

The Frankfurt-based central bank’s officials hope that the stimulus programme will help finally jolt the eurozone out of a prolonged period of low-to-zero inflation and towards the ECB’s target of 2% as well as kickstarting the region’s economies. The programme is combined with other stimulus measures, such as cheap long-term loans and government bond buying.

As part of its plan, the ECB will buy euro-denominated investment grade bonds issued by companies in the euro area. The bank has already started buying five-year utility bonds in the secondary market, reports Reuters.

It has also purchased more than €1 trillion (US$1.14 trillion) of mainly government bonds under its quantitative easing (QE) programme, launched in March 2015. However, today’s move marks the ECB’s first venture into the corporate bond market, which it hopes directly will stimulate economic activity by lowering businesses’ borrowing costs.

Ahead of the launch, there has been two record-breaking weeks for European corporate bond sales in April and May, according to the Financial Times. It reports that data from Dealogic shows issuance of €21.7bn and €189.7bn respectively, both more than double the total achieved in January 2016.

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