The ECB Began Corporate Bond Purchases

Market Trends - 09/06/2016

As part of its quantitative easing measures, the European Central Bank began purchasing corporate sector bonds on June 8th. European domiciled corporations such as BMW, Deutsche Telekom and AB InBev which have an investment grade credit ranking are eligible to participate under this central bank bond purchase scheme, but not banks. The corporate sector purchase program or CSPP is part of the suite of monetary policy tools used by the ECB, and is expected to play a direct role in stoking inflation in the euro area.

While the scope and size of the corporate bond purchases is yet to be known, many European corporations have already started issuing record levels of debt, knowing that the ECB will be a buyer. The debt market in the corporate sector is expected to fuel companies' expansion, acquisition and merger activities, with some US companies looking to set up shop in the euro area just to take advantage of this deal. The ECB is expected to publish a weekly report on the amount of corporate bonds it purchases. National central banks from Belgium, Netherlands, Germany, France and Italy will be acting as the regional intermediary purchasers from primary and secondary markets.

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