The Privilege of Eligibility: Announcement Effects and Spillovers of the ECB's Corporate Sector Purchase Program

Abstract

This paper examines the immediate impact that the unexpected announcement of the ECB's Corporate Sector Purchase Program on March 10, 2016 had on corporate bond prices. Employing a differences-in-differences specification augmented to a spatial autoregressive model, the impact of the CSPP announcement is disentangled from three other ECB measures introduced on the same day, while accounting for spillovers to the control group of non-eligible bonds. The introduction of the CSPP is estimated to have decreased the yield spread of eligible corporate bonds by 12bp (10% relative change) within two trading days after the announcement. While the results are in line with the notion of a strong portfolio rebalancing channel, as intended by the ECB, the analysis at the same time also documents persistently heterogeneous effects between eligible and non-eligible bonds, hinting at the formation of a more permanent price premium following the announcement.

Keywords: ECB, Corporate Sector Purchase Program, Asset Purchase Program, Unconventional Monetary Policy, Quantitative Easing

JEL Classification: E52, E58, G12, G18