ECB plays safe as corporate bond buying gets underway

The European Central Bank (ECB) has made a relatively low-key start to its corporate bond buying programme according to reports, purchasing debt in some of Europe’s most high-profile companies on the first day.

The programme, announced in March, is a further plank in the ECB’s ambitious asset purchase programme that aims to nudge inflation in the eurozone towards its 2% target figure and revive growth in the region’s most sluggish economies.

According to a Thomson Reuters report, among bonds that the ECB chose from the secondary market in its initial purchases were those of Italian insurer Generali, 10-year debt issued by Spain’s Telefonica and five-year bonds from French utility Engie.

Since its quantitative easing (QE) programme launched back in March 2015, the ECB has bought €1 trillion of mostly government bonds and now hopes that extending its purchases into non-bank corporate debt will give European companies an incentive to invest and stimulate growth.

On the first day the central bank’s purchases of corporate bonds were typically in a €3m to €5m range per trade and bond prices showed little movement, suggesting that additional demand from the ECB had already been priced in.

Already corporate yields have already sharply over the three months since the ECB announced its plans in March, suggesting that companies have been starting to benefit even before the ECB kicked-off its corporate bond purchases. The ECB will begin publishing a list of the bonds it has purchased from July 18.

Both Generali and Telefonica are reported to have said that they intend to reduce their leverage ratios, suggesting that any benefit from the ECB’s purchases is more likely to be used to reduce debt rather than to fund investment.


Related reading