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Leaky ECB quantitative easing opens up value


The European Central Bank’s (ECB) decision to buy investment grade corporate bonds as part of its monetary policy easing is rippling through credit markets. The spreading impact of the announcement of the programme’s details on 21 April is opening up relative value for investors in areas such as high yield.

The Corporate Sector Purchase Programme (CSPP), to start in June, will buy euro-denominated bonds from non-bank companies established in the euro area, with up to 30-year maturities and bearing at least one investment-grade credit rating. Bonds will be bought in both the primary and secondary markets and it can acquire up to 70% of a given issue.

The move has been prompted by the failure of previous rounds of quantitative easing (QE) to lift Eurozone consumer price inflation back towards the central bank’s target of just under 2%. This latest programme will sit alongside the ECB’s existing purchases of government and covered bonds and asset-backed securities.

The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested.

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