Quantify the Quantitative Easing: Impact on Bonds and Corporate Debt Issuance

47 Pages Posted: 29 Mar 2018 Last revised: 21 Apr 2019

See all articles by Karamfil Todorov

Karamfil Todorov

London School of Economics & Political Science, Department of Finance

Date Written: July 19, 2017

Abstract

This paper studies the impact of the ECB’s Corporate Sector Purchase Programme (CSPP) announcement on prices, liquidity and debt issuance in the European corporate bond market using a dataset on bond transactions from Euroclear. I find that the QE programme increased prices and liquidity of bonds eligible to be purchased substantially. Bond yields dropped on average by 30 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.

Keywords: Quantitative easing (QE), Corporate Sector Purchase Programme, European Central Bank, bond market, corporate debt issuance

JEL Classification: E52, E58, G12, G18

Suggested Citation

Todorov, Karamfil, Quantify the Quantitative Easing: Impact on Bonds and Corporate Debt Issuance (July 19, 2017). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=3139875 or http://dx.doi.org/10.2139/ssrn.3139875

Karamfil Todorov (Contact Author)

London School of Economics & Political Science, Department of Finance ( email )

London
Great Britain

HOME PAGE: http://ktodorov.com

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