The corporate sector purchase programme (CSPP) is celebrating its first birthday. This means that, for a good year now, the European Central Bank (ECB) has been the largest buyer on the market for corporate bonds in the Eurozone. The ECB now holds a good 11% of the corporate bonds which the ECB is allowed to buy.
With this purchase programme, the ECB has exerted a tangible influence on market development. For example, the credit spreads of five-year corporate bonds with a BBB rating have fallen since the announcement of the CSPP from just over 80 basis points (0.80%) to currently just below 30 basis points. While a number of effects, such as the good economic development and the very expansionary monetary policy of the ECB, were obscured, a good part of the improvement can most likely be directly attributed to the CSPP.
The financing costs of companies have therefore fallen noticeably overall. For the companies with the corresponding market access, this is naturally a huge advantage. Major company acquisitions have become far easier to implement in this way, as can already be seen. A further distinct advantage is the greater ease with which necessary investments could be realised, a factor that can be expected to boost the competitiveness of companies.
The obvious disadvantage is naturally the prospect of the good conditions changing in the near future. The ECB will gradually allow the programme to taper out. This will nudge the costs of corporate financing up again. For companies that have failed to favourably position themselves structurally, this will certainly be a difficult process. A further problem will also be the need for companies to establish a new investor base. Many investors have left this area since there are hardly any purchasable bonds left.
All in all, the purchase programme for corporate bonds has had much to offer companies. This was at the expense of market efficiency. The important thing now is that the ECB ends the programme without inflicting any greater damage.