The SPV Loophole: Draghi Just Unleashed “QE For The Entire World”… And May Have Bailed Out US Shale
Almost exactly one year ago, we wrote “Mario Draghi, Collateral Scarcity, And Why The ECB Will Soon Buy Corporate Bonds.” 11 months later, the ECB confirmed this when for the first time ever, Mario Draghi said he would do purchase corporate bonds when he launched the ECB’s Corporate Sector Purchase Programme (CSPP), confirming that with government bond collateral evaporating and the liquidity situation getting precariously dangerous and forcing moments of historic volatility (as in the April/May 2015 Bund fiasco), he had run out of other options.
And while we have been covering this key development closely since its announcement more than a month ago, we were surprised by how little attention most of the sellside was paying to what is clearly a watershed moment in capital markets as a central banks now openly backstops corporate bond issuance (among other things pointing out a month ago Why The ECB Will Be Forced To Buy Junk Bonds Next). Ironically, the market was fully aware of what the ECB’s action meant as we showed in the “The ECB Effect: European Telecom Issues Largest Ever Junk Bond After More Than 100% Upsizing.”
Now, following the release of the full details of its corporate bond buying program, analysts are once again keenly focused on hits program who impact will be dramatic over the coming years.
First, as a reminder, here are the big picture details:
- May buy in primary and secondary markets
- Issue share limit of 70% per ISIN
- Inclusion of bonds issued by insurance companies
- Can buy bonds of companies incorporated in the euro area whose ultimate parent is not based in the euro area
- Remaining maturity of 6 months and maximum of 30Y
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