CSPP: The bull in the corporate china shop
News of the ECB’s corporate-sector purchasing programme shocked the market in March and has already prompted a stampede for paper among desperate investors before the central bank has purchased a single bond. Bankers and investors are already complaining that the programme will not have its desired effect.
The road to hell is paved with good intentions. In March, when Mario Draghi decided to expand the ECB’s asset purchases to include investment-grade corporate bonds his aim was to stimulate investment in Europe. Instead he has precipitated a frenzied chain reaction that could end up completely destabilizing this market.
"The ECB will bust the market like it did in covered bonds,” predicts one corporate financier gloomily. “The ECB is using your money to buy bonds from corporates that can already finance easily in order to drive spreads even tighter. This will drive investors to other markets, notably the US. So Draghi might as well just write a cheque to the US corporate sector.”
There is no doubt that the corporate sector purchasing programme (CSPP) has ushered in a field day for Europe’s corporates at the expense of its institutional bond buyers. Speaking at the International Capital Market Association’s (Icma) AGM in mid-May Frank Engels, CIO fixed income at Union Investment Privatfonds, stated: “This is a major disadvantage for investors. It will reduce the free float available, and secondary market liquidity will disappear like it did in the covered bond market and the ABS market.