Changes in the investor base for euro area non-financial corporate bonds and implications for market pricing

Lia Vaz Cruz and Taneli Mäkinen

Economic Bulletin Boxes, 2023, vol. 5

Abstract: The non-financial corporate bond market in the euro area has grown substantially over the past decade. The expansion in the supply of bonds was met with broad-based demand from all investor groups and accompanied by only a limited increase in corporate bond spreads. To better understand private sector demand for corporate bonds and its role in the price effects of changes in supply, this box studies the demand elasticities of individual sectors and the distribution of corporate bond holdings across the private sector. The findings, which focus on a low-yield period, suggest that insurance corporations and pension funds (ICPFs) play a special role in the corporate bond investor base: unlike other private sector investors, ICPFs demand fewer corporate bonds when their spreads increase, thereby potentially amplifying the price effects of shifts in supply. As the market share of ICPFs has fallen and that of other private sector investors has increased, the upward pressure on corporate bond spreads from unexpected increases in their supply, under low market stress, is estimated to have decreased. JEL Classification: G11, G12

Keywords: bond pricing; corporate bonds; securities holdings (search for similar items in EconPapers)
Date: 2023-08
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ecb.europa.eu//press/economic-bulletin ... 6~3f689a7ab9.en.html (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbbox:2023:0005:6

Access Statistics for this article

More articles in Economic Bulletin Boxes from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().