Quantify the quantitative easing: Impact on bonds and corporate debt issuance |
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| Institution: | 1. Babson College, 320 Tomasso Hall, Babson Park, MA 02457, USA;2. Boston College, Fulton Hall, Room 330, Chestnut Hill, MA 02467, USA;1. Johnson Graduate School of Management, Cornell University, 447 Sage Hall, Cornell University, Ithaca, NY 14853, USA; UTS Australia;2. Gabelli School of Business, Fordham University, 45 Columbus Ave Room 627, New York, NY 10023, USA;3. Federal Reserve Board of Governors, Federal Reserve Board, 20th & Constitution Ave NW, Washington, DC 20551, USA;1. Miami Business School, University of Miami, United States;2. The Wharton School, University of Pennsylvania, United States;3. Pamplin College of Business, Virginia Tech, United States;1. Bank of France, Markets Department, 31 rue Croix-des-Petits-Champs, Paris 75001, France;2. Bank of France, Research Department, 31 rue Croix-des-Petits-Champs, Paris 75001, France;4. International Monetary Fund, Monetary and Capital Markets Department, 700 19th St NW, Washington 20431, DC, United States;1. Federal Reserve Board of Governors, 20th and C St. NW, Washington, DC 20551, USA;2. Price School of Public Policy, University of Southern California, 650 Childs Way, Los Angeles, CA 90089, USA;3. Federal Reserve Bank of Philadelphia, Ten Independence Mall, Philadelphia, PA 19106, USA |
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| Abstract: | This paper studies the impact of the European Central Bank’s (ECB) Corporate Sector Purchase Programme (CSPP) announcement on prices, liquidity, and debt issuance in the European corporate bond market using a data set on bond transactions from Euroclear. I find that the quantitative easing (QE) programme increased prices and liquidity of bonds eligible to be purchased substantially. Bond yields dropped on average by 30 basis points (bps) (8%) after the CSPP announcement. Tri-party repo turnover rose by 8.15 million USD (29%), and bilateral turnover went up by 7.05 million USD (72%). Bid-ask spreads also showed significant liquidity improvement in eligible bonds. QE was successful in boosting corporate debt issuance. Firms issued 2.19 billion EUR (25%) more in QE-eligible debt after the CSPP announcement, compared to other types of debt. Surprisingly, corporates used the attracted funds mostly to increase dividends. These effects were more pronounced for longer-maturity, lower-rated bonds, and for more credit-constrained, lower-rated firms. |
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