The ECB starts buying corporate debt – The World

Le Monde | 06/08/2016 at 9:44 • Updated 08/06/2016 at 10:20 | By Marie Charrel

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a total redemptions of public and private securities amounted to 80 billion euros monthly. They should be extended until spring 2017 at least. With a goal revive inflation, credit and growth in the euro area.

• Why the ECB does redeem corporate bonds

After lowering its maximum interest rate (it is now at 0%), the ECB began in March 2015, to buy back shares of public debt of member countries of the zone euro in the secondary market, where exchange the bonds already issued. This is called “quantitative easing”, or quantitative easing (QE) in English.

The aim was to thwart the deflationary threat the Old Continent by boosting credit and activity. By buying these debts, the ECB contributes indeed bring down sovereign yields and, in turn, other rates in the economy. . As such, those loans to businesses and households

But by purchasing these securities, it also increases the amount of circulating euro – enough to lower the rate of the single currency against the dollar, favoring in passing the European exporters.

Problem. Despite these measures, the business credit is still struggling to recover. That is why the ECB decided to also redeem their bonds. Again, the idea is to drive down rates: companies could thus pay less; This may encourage them to invest and hire. Indeed, the mere announcement of these purchases has already contributed to lower rates – as often, investors have largely anticipated the action of the monetary institute …

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• Which companies will benefit

These purchases began on June 8 on the market? primary (from the issue of shares) and secondary (resale). They are led by six national central banks: the Belgian, German, Spanish, the French, Italian and Finnish

The companies eligible bonds must be rated at least “BBB -” by the rating agencies, what guarantee their quality. The securities of banks and bank subsidiaries are excluded, but not those of insurers.

Which companies will benefit? Mainly large groups, especially in pharmaceuticals, aerospace, food, automotive. “France can say thank you to Mario Draghi, because its companies benefit greatly by” says Maxime Sbaihi, economist at Bloomberg Intelligence. The tricolor bond market called “corporate” is the biggest effect of the euro area.

The ECB will communicate for the first time on 18 July, and on a weekly basis on redemptions. But she did not detail the list of targeted businesses, not unduly influence the behavior of investors

The market for corporate bonds remains small in Europe. The volume of eligible products from 500 to 700 billion euros, analysts said. The purchases of the ECB which should not exceed 5 billion a month – only a small part of its 80 billion program, so

• What effect on growth.?

This program will mainly benefit large groups. Now, say the economists, they today have little difficulty to find financing.

The problem is more on the side of TPE and SMEs, for their part, have little access to the bond market. The vast majority of them are financed in effect by the bank loan. They therefore do not benefit from lower bond yields Corporate …

Or at least, not directly. The ECB indeed hope that there will be indeed a “portfolio rebalancing” , a rebalancing of portfolios. “Disappointed by becoming rates too low bonds issued by large companies, banks and other investors seek better returns by providing funding to riskier debtors such as SMEs, this time by the bank lending channel says Eric Dor, director of studies at the IESEG School of Management. These therefore benefit from a more abundant supply of credit at rates that would decrease “.

This is also by the banks’ portfolios rebalancing mechanism and investors that the ECB hopes its QE produce a general decline in funding costs to the economy.

the ECB also recalls that these purchases fall within a range of other tools : low rates, negative deposit rates (- 0.4%), new giants loans to banks (the “TLTRO”) on June 22 … Together, these measures are likely to support the upturn in credit and activity , assure central bankers.

But they did nothing of a magical potion. The ECB can not in fact do much to lift the other handicaps weighing on growth, such as anemia wages or lack of confidence of entrepreneurs in the future.

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