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Titolo: 17:08 DJ The ECB Can't Buy As Many Bonds As It Seems
Testo: By Jon Sindreu
The European Central Bank dazzled credit markets on Thursday by announcing that it would purchase more corporate bonds than expected.
But a closer look at the scheme suggests the pool of eligible assets could, in fact, be smaller than first appears.
On Thursday, ECB officials said that the central bank will be able buy up to 70% of any single corporate bond issue. Adding to the potential pool, officials said that they will also buy euro-denominated debt issued by foreign-owned companies.
That sets up around EUR800 billion ($903 billion) worth of bonds for the ECB to choose from, many analysts say. That tallyhas surpassed expectations by most analysts after ECB President Mario Draghi announced in March that the central bank would be buying corporate bonds, alongside the billions of euros worth of sovereign bonds it already buys every month.
"The sheer fact that the details were announced was not unilaterally expected to begin with," RBC Capital Markets said in a research note Friday. "Furthermore, however, the details surprised slightly to the upside."
But a second look at the corporate bond market suggests that the ECB is more constrained than many analysts think.
Among the announcements on Thursday, the central bank said it will "conduct appropriate credit risk and due diligence procedures on the purchasable universe on an ongoing basis."
Deutsche Bank believes that this could mean putting a cap on how many bonds that it can buy from any one issue, given that it will wish to avoid the risk of concentrating on individual credits.
"The ECB is going to take default-risk management measures that include imposing some diversification constraints," said Deutsche Bank strategist Michal Jezek. "Those, in turn, will shrink the effective eligible universe."
If the ECB was to impose a cap of buying only 1% of the bonds of any one single issuer that could shrink the total eligible pool to EUR552 billion from about EUR850 billion, according to research from Deutsche Bank.
Nobody quite knows yet exactly what the exact terms the ECB will use to guide its buying; perhaps the ECB itself doesn't even know yet.
But the bank could face other hurdles limiting the size of the pool that it can buy from. That includes the difficulty of finding large chunks of liquid assets to buy from. The government debt markets it currently buys from are considerably more liquid than Europe's corporate bonds markets. Liquidity issues have already cropped up in covered bond markets, where the ECB has been buying bonds for years.
"It goes without saying that the ECB will struggle to buy large quantities due to liquidity constraints," said Dutch Bank ING in a research note. ING goes on to list other constraints: The high percentage of other buy-and-hold investors in credit markets and the fact that non-bank eurozone companies just may not be looking to raise much cash.
(END) Dow Jones Newswires
22-04-16 1508GMT
Copyright (c) 2016 Dow Jones & Company, Inc.
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