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Macaskill on markets: Central bank and chill?

Central bank corporate credit support is helping to cut debt costs for borrowers such as Netflix. A government put option won’t cure all the problems looming in the credit markets, however.


The European Central Bank moved towards joining the Federal Reserve as a buyer of last resort for high-yield debt on Wednesday April 22, with a relaxation of the quality of collateral it will accept for loans.

This gave another push to a recovery in credit spreads over government benchmarks from the highs seen in March, which has helped to keep the market for new issuance of corporate bonds open for borrowers of different types.

Netflix, the online screening firm that has seen demand for its output soar during the coronavirus lockdown, was one beneficiary of the move by central banks to support credit markets.

Netflix issued €470 million of five-year debt with a 3% coupon that marked its lowest cost to date for a bond issue on the day after the ECB’s collateral move, alongside a $500 million note with the same maturity and a 3.625% coupon.

Analysts are divided on whether or not the ECB will eventually add outright purchases of high-yield bonds to its existing buying of investment grade paper.

The universe of European high-yield bonds is limited, with bank issuance and non-eurozone paper accounting for over a third of a market of about €340 billion.

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