Liquidity in the German Corporate Bond Market: Has the CSPP Made a Difference?

53 Pages Posted: 30 Mar 2021

See all articles by Lena Boneva

Lena Boneva

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Mevlud Islami

Deutsche Bundesbank

Kathi Schlepper

Deutsche Bundesbank; Goethe University Frankfurt

Date Written: 2021

Abstract

The Eurosystem purchased €178 billion of corporate bonds between June 2016 and December 2018 under the Corporate Sector Purchase Programme (CSPP). Did these purchases lead to a deterioration of liquidity conditions in the corporate bond market, thus raising concerns about unintended consequences of large-scale asset purchases? To answer this question, we combine the Bundesbank’s detailed CSPP purchase records with a range of liquidity indicators for both purchased and nonpurchased bonds. We find that while the flow of purchases supported secondary market liquidity, liquidity conditions deteriorated in the long-run as the Bundesbank reduced the stock of corporate bonds available for trading in the secondary market.

JEL Classification: E52, F30, G12

Suggested Citation

Boneva, Lena and Islami, Mevlud and Schlepper, Kathi, Liquidity in the German Corporate Bond Market: Has the CSPP Made a Difference? (2021). Deutsche Bundesbank Discussion Paper No. 08/2021, Available at SSRN: https://ssrn.com/abstract=3813661 or http://dx.doi.org/10.2139/ssrn.3813661

Lena Boneva (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Mevlud Islami

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Kathi Schlepper

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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