Daily Insight
Group Economics Macro & Financial Markets Research
10 June 2016
CSPP: a promising start Hyung-Ja de Zeeuw Senior Credit Strategist Tel: +31 20 628 3551 hyung-ja.de.zeeuw@nl.abnamro.com
ECB kick-starts corporate sector purchase programme with purchases across all sectors and maturities Also the riskier end of the spectrum is bought… …underpinning the idea that the QE programme is also used to provide extra support to the periphery Pool size is almost halved by issue share limit making the primary market an important source of bonds
ECB kick-starts corporate sector purchase programme Finally, the highly anticipated ECB corporate sector purchasing programme kicked-off on Wednesday. The six central banks that will execute the purchase programme, to buy small amounts of EUR 2 to 5 mln. The Eurosystem started with utilities and insurers and later moved to other sectors as well. A broad range of corporates were bought across all sectors and tenors.
Also the riskier end of the spectrum was bought… There’s anecdotal evidence that the central bank of Italy also bought Telecom Italia, which is remarkable given its low rating of Ba1/BB+/BBB-. This shows that Eurosystem isn’t shy to buy the more risky assets of the corporate credit spectrum. The fact that Euosystem is not a forced seller when a corporate gets downgraded to sub-investment grade, most probably provides some comfort.
…underpinning the idea that the QE programme is also used to provide extra support to the periphery We’ve seen in other programmes that the Eurosystem bought large amounts of bonds from the periphery. In CBPP3, the covered bond purchase programme, Eurosystem bought relatively large shares from Italy, Portugal and Spain. In our earlier publication ‘Corporate Bond Watch - CSPP: lessons learned from CBPP3’, we’ve already demonstrated that Eurosystem owns significant shares of periphery covered bonds. In some cases, Eurosystem ownership reached up to 45% of the outstanding stock of a jurisdiction. This underpins the idea that the ECB is trying to provide support the economies of the periphery with its QE programme.
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Daily Insight - CSPP: a promising start - 10 June 2016
Final details almost halve pool of corporate bonds from EUR 760 to EUR 460bn Applying the final details of the programme that were released on June 2nd, means that the pool of corporate bonds that can be purchased is almost halved from EUR 760bn to EUR 460bn. In particular the issue share limit of 33% for ‘public undertakings’ weighs heavily on the pool. Many utilities are ‘public undertakings’ according to our assessment and utilities form the largest sector in the corporate asset category.
Issue share limits almost halve CSPP pool Eligible bonds and issue share limit based on our assessment, EUR bn
Utility sector pool halved by issue share limit Sector eligibility and issue share limits based on our assessment, EUR bn
200 180 160 140 120 100 80 60 40 20 -
Eligible universe EUR 760bn
Pool after issue share limit EUR 460bn
Pool after share limit Source: ECB, Bloomberg, ABN AMRO Group Economics
Issue share limit
Source: ECB, Bloomberg, Markit, ABN AMRO Group Economics
This means that the primary market will be an important source of bonds The relatively small pool that is left after applying the issue share limit, means that the primary market will form an important source of bonds for the corporate programme. As the CBPP3 programme has shown, as the programme progresses in time, the focus of the purchases by the Eurosystem shift from the secondary market to the primary market. Simply said, Eurosystem buys there where liquidity is best. We expect the same effect in the corporate programme. However, due to the lower liquidity in the corporate market we expect the shift to the primary market to materialise at an earlier stage.
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Daily Insight - CSPP: a promising start - 10 June 2016
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