Quantify the Quantitative Easing: Impact on Bonds and Corporate Debt Issuance
47 Pages Posted: 29 Mar 2018 Last revised: 21 Apr 2019
Date Written: July 19, 2017
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: Suggested Citation