Quantify the quantitative easing: impact on bonds and corporate debt issuance

Karamfil Todorov

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper studies the impact of the European Central Bank’s (ECB) Corporate Sector Purchase Programme (CSPP) announcement on prices, liquidity, and debt issuance in the European corporate bond market using a data set on bond transactions from Euroclear. I find that the quantitative easing (QE) programme increased prices and liquidity of bonds eligible to be purchased substantially. Bond yields dropped on average by 30 basis points (bps) (8%) after the CSPP announcement. Tri-party repo turnover rose by 8.15 million USD (29%), and bilateral turnover went up by 7.05 million USD (72%). Bid-ask spreads also showed significant liquidity improvement in eligible bonds. QE was successful in boosting corporate debt issuance. Firms issued 2.19 billion EUR (25%) more in QE-eligible debt after the CSPP announcement, compared to other types of debt. Surprisingly, corporates used the attracted funds mostly to increase dividends. These effects were more pronounced for longer-maturity, lower-rated bonds, and for more credit-constrained, lower-rated firms.

Keywords: quantitative easing; Corporate Sector Purchase Programme; ECB; bond market; corporate debt issuance (search for similar items in EconPapers)
JEL-codes: E52 E58 G12 G18 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2020-02-01
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (46)

Published in Journal of Financial Economics, 1, February, 2020, 135(2), pp. 340 - 358. ISSN: 0304-405X

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Journal Article: Quantify the quantitative easing: Impact on bonds and corporate debt issuance (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:101665

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