Issuance and Valuation of Corporate Bonds with Quantitative Easing

61 Pages Posted: 5 Mar 2021

See all articles by Stefano Pegoraro

Stefano Pegoraro

University of Notre Dame - Department of Finance

Mattia Montagna

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: January, 2021

Abstract

After the announcement of the European Central Bank’s corporate quantitative easing program, non-financial corporations timed the bond market by shifting their issuance toward bonds eligible for the program. However, issuers of eligible bonds did not increase total issuance compared to other issuers; nor did they experience different economic outcomes. Instead, the announcement produced substantial spillover effects on risk premia. Credit risk premia declined, both in the corporate bond market and in the default swap market, whereas the valuation of eligible bonds did not change relative to comparable ineligible bonds. Firms took advantage of reduced risk premia by issuing riskier bond types. Using a novel and comprehensive dataset of corporate bonds in the euro area, we document how firms substituted across bond characteristics, and we find evidence of their intention to time the market. Our model indicates corporate market timing is instrumental in allowing quantitative easing to produce spillover effects.

JEL Classification: G32, G12, E52, E58, E44

Suggested Citation

Pegoraro, Stefano and Montagna, Mattia, Issuance and Valuation of Corporate Bonds with Quantitative Easing (January, 2021). ECB Working Paper No. 2021/2520, Available at SSRN: https://ssrn.com/abstract=3797140 or http://dx.doi.org/10.2139/ssrn.3797140

Stefano Pegoraro (Contact Author)

University of Notre Dame - Department of Finance ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States
5746312240 (Phone)
46556 (Fax)

Mattia Montagna

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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