Earlier last week, various financial markets – particularly investors – were tickled over the rumors surrounding the European Central Bank.
These rumors alleged that the central bank was ‘seriously considering buying corporate bonds in order to help bolster the European economy and complement the covered bonds and asset-based securities program they supported.’
However, that doesn’t seem to be the case now.
Although the European Central Bank did consider the scheme, their deliberations over the matter have revealed some issues with the projected corporate bond buying scheme, should they have gone ahead with it.
Those who own such bonds may not want to sell them off—and that prospect makes it appear as if the ECB won’t be able to purchase enough corporate bonds for their economy-bolstering purposes. The pool of corporate bonds is currently estimated at around 700 billion to 1.1 trillion euros, taking short maturity, forex or issuer/junk rating bonds out of the equation.
That’s, at least, what bond market analysts and enthusiasts are saying about the matter. Many say that a ‘shortage of bonds to buy would ultimately make the [bond buying] scheme look more symbolic than anything worth of note.’ Not only that, it would actually make the ECB look as if they’ve been experiencing difficulties, particularly with going ahead with their controversial plans to buy up sovereign debts.
In other words, experts say the bond buying scheme could be more detrimental to the ECB than beneficial.
In light of the rumors, the European Central Bank did state that their Governing Council ‘hasn’t decided to consider buying corporate bonds.’
Though they haven’t made or will make that decision yet, experts have pointedly bought up the fact that the ECB hasn’t really decided how they plan to spend their ‘newly printed’ money.
The ECB previously stated that they ‘aim to bring their balance back to 2012 levels, helping unclog credit channels and helping stimulate and bring back lending to their economy.’ Their balance sheet is now at about 2 trillion.
Due to the apparent lack of corporate bonds in the market, analysts say that the ECB would only be able to purchase about 100 billion euros worth of covered bonds and asset-backed securities.