The Impact of the Bank of England's Corporate Bond Purchase Scheme on Yield Spreads

14 Pages Posted: 27 Mar 2018

See all articles by Lena Boneva

Lena Boneva

Bank of England

Calebe de Roure

Reserve Bank of Australia

Ben Morley

Bank of England

Date Written: March 23, 2018

Abstract

As part of its August 2016 policy package, the Bank of England announced a scheme to purchase up to £10 billion of corporate bonds. Only sterling investment-grade bonds issued by firms making a ‘material’ contribution to the UK economy were eligible to be purchased. So eligible bonds constitute a natural treatment group to estimate the announcement effect of the policy in a difference-in-differences approach. Our results suggest that the scheme reduced spreads of eligible bonds by 13–14 basis points compared to foreign bonds issued by the same set of firms, and by 2–5 basis points compared to ineligible sterling corporate bonds. But because of spillover effects, these estimates should be interpreted as a lower bound.

Keywords: Central bank asset purchases, corporate bond, announcement effect

JEL Classification: E43, E58, G12

Suggested Citation

Boneva, Lena and de Roure, Calebe and Morley, Ben, The Impact of the Bank of England's Corporate Bond Purchase Scheme on Yield Spreads (March 23, 2018). Bank of England Working Paper No. 719. Available at SSRN: https://ssrn.com/abstract=3149766 or http://dx.doi.org/10.2139/ssrn.3149766

Lena Boneva (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Calebe De Roure

Reserve Bank of Australia

65, Martin Place
Sydney, NSW 2000
Australia

Ben Morley

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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