The Impact of the Eurosystem's Covered Bond Purchase Programme on the Primary and Secondary Markets

Abstract

In 2011 all ECB publications feature a motif taken from the €100 banknote.

The CSPP impact on non-financial firms’ cost of borrowing and debt choice

“…The spreads of the two types of debt financing decrease in 2016, the year of the announcement and implementation of the CSPP, with the bond spread continuing this trend until 2019, while the loan spread saw a significant increase in 2019. This first analysis is consistent with the announcement effects identified not only in other studies for the CSPP, but also for other programmes (Beirne et al, 2011;Altavilla et al, 2015;Markmann and Zietz, 2017;Zaghini, 2019).…”

“…The literature on the impact of the ECB's APP on both credit markets and pricing of debt instruments is relatively scant (Markmann, 2018) and has focused mainly on covered bonds, specifically on the CBPP1 and CBPP2. Beirne et al, (2011) present results corroborating that CBPP1 has fulfilled its primary objectives, by considerably stimulating the issuance of covered bonds in the primary market and improving funding conditions for the Eurozone banks. Szczerbowicz (2015) and Gibson et al (2016) show evidence of CBPP1 and CBPP2 as effective mechanisms for lowering covered bond spreads.…”

“…Regarding loans, in model [4b], while the announcement period does not impact spreads, they reduce significantly in the purchase period (69.3 bps). For bonds, the larger reduction in spreads in the period after the announcement when compared to the implementation period is similar to Beirne et al's (2011) findings for covered bonds during CBPP1. As pointed out by Bernanke (2020), this reflects the incorporation on bond prices of the effects of future purchases under the programme.…”

“…2 We contribute to a recent strand of the literature that examines the impact of the ECB's APP on euro area non-financial firms' funding conditions. So far, the literature has focused mostly on financial firms and the CBPP1 and CBPP2's effects on the secondary market, with mixed results regarding its effectiveness, especially for the second programme (Beirne et al, 2011;Szczerbowicz, 2015;Gibson et al, 2016;Markmann and Zietz, 2017;Gürtler and Neelmeier, 2018). For the Securities Markets Programme (SMP), Krishnamurthy et al (2018) find large reductions in the sovereign bond yields of GIIPS (Greece, Italy, Ireland, Portugal, and Spain) countries.…”

The Pricing of Bank Bonds, Sovereign Credit Risk and ECB’s Asset Purchase Programmes

“…Regarding covered bonds, the literature has focused mainly on the German market (Breger and Stovel, 2004; Koziol and Sauerbier, 2007;Kempf et al, 2012;, with limited research being carried out on international markets. A few exceptions are Beirne et al (2011), the relation between sovereign and bank credit risk. Bolton and Jeanne (2011), , and Gennaioli et al (2014) consider that the default of a sovereign induces collateral damage to banks.…”