ECB unveils further details on corporate bond purchases

European Central Bank (ECB) president Mario Draghi, speaking at monetary policy press conference, provided more details on its corporate bond purchases, which began officially this month.

First and foremost, ECB assured investors, analyst and traders that liquidity will be off no major concern, since ECB will take additional care, to assure ample liquidity in the market.

“….will be mindful of the potential impact of its purchases on market liquidity.”

“Its participation in primary market purchases will aim at striking a balance between the objective of the program and the need to ensure continued market functioning. Similarly, when buying in the secondary market, it will consider, inter alia, the scarcity of specific debt instruments and general market conditions, i.e. with a certain degree of flexibility to also take into account seasonal differences.”

ECB further clarified over, who it considers as banks.

According to ECB, said that any company regulated by the ECB’s single supervisory mechanism is not eligible, along with any company with a non-Eurozone parent, regulated as a bank. However, if the issuer owns a bank or has internal banks like car companies care included.

It also clarified that there are no minimum issuance size, which means it will gobble debts of small companies too in primary markets.

State owned or backed companies are eligible for purchase under any one program (Corporate or PSPP), not both.

It will also be purchasing negative yielding bonds, as long as yield is above deposit rates.

One of the most vital announcements was regarding fallen angels. ECB will not be forced to sell bonds of a corporate, which falls from investment grade to junk.