Impact of the ECB’s corporate bond purchases on the primary issuance spreads and issuance amounts of EUR denominated investment grade rated corporate bonds
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School of Business |
Master's thesis
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Authors
Date
2021
Department
Major/Subject
Mcode
Degree programme
Finance
Language
en
Pages
70
Series
Abstract
I study the impact of the ECB’s corporate bond purchases on the primary issuance spreads and issuance amounts of EUR denominated investment grade rated corporate bonds. Research on the impacts of ECB’s corporate bond purchases on the private sector is somewhat unexplored, as the literature has focused mainly on the relationship between the ECB’s actions and sovereign bonds. Still, some papers, such as Arce, Gimeno and Mayordomo (2017) and Grosse-Rueschkamp, Steffen and Streitz (2017) have studied the impact of the Corporate Sector Purchase Programme (CSPP) on already issued corporate bonds and issuing companies and found results highlighting the viability of the ECB’s participation on the bond markets. I am contributing to the literature by studying the impact the ECB’s corporate bond purchases have on primary issuances of corporate bonds, a previously unexplored angle to the discussion around ECB’s corporate bond purchases. My dataset contains all syndicated EUR denominated investment grade rated corporate bonds issued between January 2012 and February 2021, and in addition to the whole time period, I am studying two sub-time periods, from June 2016 onwards, and from November 2018 onwards. I am testing the impact of ECB’s corporate bond purchases on corporate bond spreads at time of issuance and issuance amounts with four different variables: a dummy variable for corporate bonds issued after the announcement of the CSPP, a dummy variable for corporate bonds the ECB has purchased at some point in time, a dummy variable for corporate bonds marked as eligible for the ECB to purchase, and a variable for the ECB’s corporate bond purchases amount (in EUR) relative to the amount of corporate bonds issued. My findings support Arce et al.’s (2017) and Grosse-Rueschkamp et al.’s (2017) results, that are supporting the ECB’s participation on the European bond markets. I found that corporate bonds issued after the announcement of the CSPP are issued with 18 basis points lower spreads than similar bonds issued before the announcement of the CSPP. Also, bonds that the ECB is eligible to purchase (or the ECB purchased) are issued with 13-27 basis points lower spreads than non-eligible (or not purchased) bonds, and a 100% increase in the ECB’s relative corporate bond purchase amounts decrease bond spreads at time of issuance by 41 basis points at normal (non-pandemic) market conditions. Also, corporations have issued 7 more bonds per month, worth €5 billion, after the announcement of the CSPP than before. My results imply that the ECB’s corporate bond purchases support the real economy and create more favorable financing conditions for corporations issuing bonds. Corporations have had access to cheaper funding and the popularity of bond financing have increased. This supports the viability of the ECB’s participation on corporate bond markets and offers an insight whether the ECB should use such quantitative easing in the future as well.Description
Thesis advisor
Torstila, SamiKeywords
corporate bond, primary issuance, bond spread, ECB, non-standard monetary policy