Exclusive: ECB credit buying to start small, betting on issue boom - sources

Wed May 25, 2016 6:19am EDT
 
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By Balazs Koranyi and Francesco Canepa

FRANKFURT (Reuters) - The European Central Bank will aim to start small when it begins buying corporate debt in June, seeking first to lure new issuers and then slowly raise the monthly pace of purchases to 5-10 billion euros, several central bank sources have told Reuters.

Investment-grade corporate bonds issued in euros are the latest addition to a growing list of assets the ECB is buying as part of its 1.74 trillion euro effort (1.33 trillion pounds) to boost economic growth in the euro zone via lower borrowing costs.

The difficulty is that the 600 billion euro market for such notes is largely limited to big corporations in France and the Netherlands that already enjoy easy access to credit.

The ECB, however, is hoping its money will eventually trickle down to smaller borrowers across the euro zone for whom funding is still a problem. Since this is likely to take time, the ECB will increase the pace of its purchases only gradually and refrain from setting a monthly target, conversations with seven sources in or near the ECB's decision-making body revealed.

"There could be big fluctuations in buys but if we succeed in inducing issuance, that would naturally smooth out the market," one sources said. Another source said there might be months when purchases will be in the region of just 1 billion euros.

TRICKLE DOWN

France and the Netherlands, which account for 57 percent of the bonds that the ECB can buy according to Fitch Ratings, will initially be the main focus of the purchases, the sources said.   Continued...

 
European Central Bank President Mario Draghi speaks during the Economy Day 2012 in Frankfurt, Germany November 7, 2012. REUTERS/Ralph Orlowski/File Photo