As part of its QE operations, the ECB continues to pour billions of freshly created euros each month into corporate bonds – and sometimes when it buys bonds via ‘private placements’ directly into some of Europe’s biggest corporations and the European subsidiaries of non-European transnationals. Its total corporate bond purchases recently passed the 100 billion threshold. And it’s growing at a rate of roughly 7 billion a month. And it’s in the process of becoming the biggest ‘bad bank.’
When the ECB first embarked on its corporate bond-buying scheme in March 2016, it stated that it would buy only investment-grade rated debt. But shortly after that, concerns were raised about what might happen if a name it owned was downgraded to below investment grade. A few months later a representative of the bank put such fears to rest by announcing that it ‘is not required to sell its holdings in the event of a downgrade’ to junk, raising the prospect of it holding so-called ‘fallen angels.’
Now, sixteen months into the program, it turns out that the ECB has bought into 981 different corporate bond issuances, of which 34 are currently rated BB+, so non-investment grade, or junk. And 208 of the issuances are non-rated (NR). So in total, a quarter of the bond issuances it purchased are either junk or not rated (red bars):
This post was published at Wolf Street by Don Quijones – Jul 20, 2017.
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