Liquidity in the German corporate bond market: Has the CSPP made a difference?

Lena Boneva, Mevlud Islami and Kathi Schlepper

Journal of International Money and Finance, 2024, vol. 147, issue C

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. We find that while the flow of purchases initially supported secondary market liquidity by providing a predictable source of demand, liquidity conditions deteriorated in the long-run as the Bundesbank reduced the stock of corporate bonds available for trading in the secondary market.

Keywords: Corporate bond market; Central bank asset purchases; Market liquidity (search for similar items in EconPapers)
JEL-codes: E52 F30 G12 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:147:y:2024:i:c:s0261560624001347

DOI: 10.1016/j.jimonfin.2024.103147

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