The European Central Bank’s Corporate Sector Purchase Programme (CSPP) has now been in operation for more than a month, and analysts have had time to go through the data to see what Mario Draghi’s ‘whatever it takes’ attitude really means.
Bank of America’s credit strategist Barnaby Martin weighs in on the programme in a note to clients published this morning.
ECB corporate purchases: What’s the deal?
It seems that the data available from the ECB regarding the CSPP shows that Draghi does mean business. But far from being a good thing, Bank of America’s credit team believes that this big ‘bazooka’ could be too much. Indeed, in just over a month of operation, the ECB has brought 458 bonds across the board, leaving virtually no stone unturned. The bank bought a range of credit across the rating spectrum including low-BBB rated names, high-yield credit and debt belonging to high-profile companies such as VW, Glencore and EDF. The most popular purchase so far has been Deutsche Bahn, an issuer where bond yields are the most negative.
Around 35% of the CSPP purchases have been negative yielding bonds but with many investment-grade bonds now yielding less than -0.4% (the ECB’s cut-off point) it’s likely the bank will be pushed further out into longer duration bonds as it continues the program. Buying is currently hovering around the €8.5 billion per month mark.
Together, the ECB has acquired around 35% of Bank of America’s estimated European credit universe. The central bank of Italy has been the most active buyer, buying 43% of its eligible universe of bonds. Banque de France seems to be lagging other European central banks on a relative basis having only acquired just 29% of their eligible universe.
Another trend that becomes extremely apparent from the ECB’s CSPP buying data is that Bank of America’s previous assumption that the programme would lead to QE for the world has come to fruition. Europe’s central bank has bought bonds from 158 different corporates, including companies in the US, UK and Switzerland, which have issued debt into the European debt markets.
“Foreign issuers have been bought due to their issuing entities being Dutch, for instance. For us, this underscores the point that we made a few months ago that CSPP is really “QE for the world”. Plenty of Swiss credits have been bought (such as Nestle, Novartis and Adecco) as have UK credits (Unilever) and US credits (Schlumberger and Bunge).” — Bank of America
Also, the ECB has been taking on credit risk by buying bonds of low-rated companies such as Telecom Italia and Lufthansa. However, the data shows that the ECB purchases are split by issue signs with the bank focusing its efforts on “big issues”. They have already bought 86% of eligible bonds that have an issue size of greater than €2 billion implying that the bank is hunting the most liquid issues first in the attempt not to distort markets.
Some more takeaways on the programme from Bank of America: