Demand-Driven Bond Financing in the Euro Area

We show non-financial corporations changed the quantity and composition of their bond issues in response to the European Central Bank’s corporate quantitative easing program. Eligible issuers shifted toward bonds meeting the program's eligibility requirements. Moreover, demand for credit risk increased, and risk premia in the bond market dropped after the announcement. Eligible and ineligible firms increased total issuance and shifted toward bonds with riskier characteristics, namely unsecured and non-guaranteed bonds. Total issuance increased the most among those firms that were most exposed to the decline in risk premia. Firms also shifted away from short-maturity instruments and issued more fixed-coupon bonds.

Keywords: Keywords: Bond financing, market timing, capital structure, quantitative easing, CSPP

JEL Classification: G32, G38, E58

Suggested Citation: Suggested Citation

Pegoraro, Stefano and Montagna, Mattia, Demand-Driven Bond Financing in the Euro Area (December 13, 2021). Journal of Financial and Quantitative Analysis, forthcoming, Available at SSRN: https://ssrn.com/abstract=3791730 or http://dx.doi.org/10.2139/ssrn.3791730