ECB to start buying corporate bonds in June

The European Central Bank said it plans to start buying corporate bonds in June as it unveiled more details of its purchase programme.The bank will start acquiring corporate debt maturing between six months and 30 years, according to a statement. Purchases will include bonds issued by insurance companies, while excluding those sold by banks, ECB president Mario Draghi said in a press conference on Thursday.

The new details may further boost appetite for credit after the central bank’s pledge last month to buy corporate bonds sent average yields down to the lowest in a year and triggered Europe’s busiest week for issuance. Investors are rushing to buy securities before buying starts, even though they don’t know exactly which securities will be targeted.

”Follow through in the corporate purchase programme is essential and releasing implementation details will support credit spreads even at these record levels,” said Regina Borromeo, a London-based money manager at Brandywine Global Investment Management.

Corporate bonds are the latest assets to be added to a growing list of securities, from government debt to mortgage-backed notes, targeted by the central bank under its quantitative-easing programme. Mr Draghi is buying assets as part of stimulus measures designed to combat weak growth and inflation.

National central banks

Euro-area national central banks will buy corporate bonds on behalf of the ECB, as they do for its covered bond and government debt-buying programmes. Purchases of the euro-denominated securities will be carried out by six national banks in the primary and secondary bond markets, according to the statement.The programme will include non-bank companies, even where those entities own a bank, Mr Draghi said. Companies that have a minimum rating of BBB- or equivalent from one credit ratings firm will be eligible, according to the ECB’s statement.

The national central banks won’t participate in primary market deals from entities in which public authorities hold a stake and they will buy a maximum of 70 per cent of each bond, according to the statement.

“The programme is casting as wide a net as we could possibly have expected,” said Gordon Shannon, a portfolio manager at TwentyFour Asset Management. “The key issue that remains to be seen is  how much they actually buy each month but they certainly have a lot to choose from.”

The ECB kept kept borrowing costs at rock bottom levels on Thursday.

Bloomberg/Reuters