As part of today’s update of the ECB’s asset purchases, the central bank announced for the first time, in addition to its various other sovereign and covered-bond purchases, just how many corporate bonds it had bought in the open market under its infamous CSPP, or corporate bond buying program, which officially launched on June 3.
The result: a mere €348 million in purchases on the first day in which the program was operational.
From the ECB:
The Eurosystem started to buy corporate sector bonds under the corporate sector purchase programme (CSPP) on 8 June 2016. The measure helps to further strengthen the pass-through of the Eurosystem’s asset purchases to financing conditions of the real economy, and, in conjunction with the other non-standard monetary policy measures in place, provides further monetary policy accommodation.
As the footnote to the chart adds, this represents purchases made on the first day of trading:
The figure reported for the first week only covers purchases settled by Friday 10 June and, therefore, effectively only secondary market purchases made on the first day of the CSPP implementation on Wednesday 8 June are covered.
Bloomberg previously reported that among the names purchased on the first day of CSPP were some of the most “liquid” names available anywhere including Engie, Telecom Italia, Telefonica, Anheuser-Busch InBev NV, Siemens, Assicurazioni Generali, Renault SA and RWE AG.
This is concerning because it reveals just how how illiquid the European corporate bond market has become. Recall that last Friday, using market data from Trax, CNBC reported that 19% of all corporate bond activity in the first two days of the CSPP program was down to the European Central Bank’s corporate bond-buying program.
Data from Trax released Friday showed that in the whole of 2015, corporate bond buying accounted for 12% of all corporate bond activity processed by Trax. This number went up to 14% in just the first half of 2016, the firm reported. The company processes approximately 65 percent of all fixed income transactions in Europe through its post-trade services.
If accurate, this means that the entire European secondary bond market has become a desolate wasteland of actual transactions, with a paltry €1.8 billion in total trades implied (assuming €348MM is 19% of all trades) even with the market boldly able to trade knowing the ECB is backstopping it.
It also means that the ECB will likely have a very hard time completing its mandate and finding enough willing sellers of corporate bonds in the coming months.
To be sure, the price action is starting to hint at troubles ahead.
The next question is which bonds did the ECB purchase. While we already know some of the names acquired by the ECB, which included companies which were for all intents and purposes rated junk, the first list will be published on Monday, 18 July with details of all the holdings.
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