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

Todorov, Karamfil (2020) Quantify the quantitative easing: impact on bonds and corporate debt issuance. Journal of Financial Economics, 135 (2). 340 - 358. ISSN 0304-405X

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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.

Item Type:	Article
Official URL:	https://www.sciencedirect.com/journal/journal-of-f...
Additional Information:	© 2019 Elsevier B.V.
Divisions:	Systemic Risk Centre Finance
Subjects:	H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions
JEL classification:	E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects) E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
Date Deposited:	19 Sep 2019 09:54
Last Modified:	08 Nov 2024 17:24
URI:	http://eprints.lse.ac.uk/id/eprint/101665

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