Portfolio Balance Effects of the SNB's Bond Purchase Program

University of Zurich, Department of Economics Working Paper No. 116

39 Pages Posted: 21 Mar 2013

See all articles by Andreas Kettemann

Andreas Kettemann

University of Zurich - Department of Economics

Signe Krogstrup

National Bank of Denmark - Economics Department; Danmarks Nationalbank (The Central Bank of Denmark); IMF

Date Written: February 25, 2013

Abstract

This paper carries out an empirical investigation of the impact on bond spreads of the announcement, purchases and exit from the SNB’s bond purchase program in 2009-2010. We find evidence in favor of a narrowing yield spread of covered bonds as a result of the program. The effect materialized in the days following the announcement of the SNB’s intention to buy bonds issued by private sector borrowers, as markets learned that the SNB was buying covered bonds. The specification of the bond spreads used allows us to identify this effect as a discounted portfolio balance effect of the expected purchases, as distinct from policy signalling. In contrast, we find no evidence of a further effect of the actual purchases and subsequent sales on bond spreads.

Keywords: Portfolio balance, credit spread, corporate spread, unconventional monetary policy, central bank asset purchases, credit easing, zero lower bound

JEL Classification: E5, G1

Suggested Citation

Kettemann, Andreas and Krogstrup, Signe, Portfolio Balance Effects of the SNB's Bond Purchase Program (February 25, 2013). University of Zurich, Department of Economics Working Paper No. 116, Available at SSRN: https://ssrn.com/abstract=2236299 or http://dx.doi.org/10.2139/ssrn.2236299

Andreas Kettemann (Contact Author)

University of Zurich - Department of Economics ( email )

Plattenstrasse 14
Zürich, 8032
Switzerland

Signe Krogstrup

National Bank of Denmark - Economics Department ( email )

1093 Copenhagen
Denmark

Danmarks Nationalbank (The Central Bank of Denmark) ( email )

Havnegade 5
Copenhagen, 1093
Denmark

IMF ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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