MORE STIMULATION: ECB Contemplates Purchasing Corporate Bonds
The European Central Bank (ECB) is contemplating on whether to purchase corporate bonds on the secondary market. On Tuesday, Reuters broke the story on the ECB’s consideration of corporate bond purchases. The central bank will most likely decide on the measure in December and if approved, bond purchases may begin in the first quarter of 2015. This move would augment the central bank’s private sector asset-purchasing initiative in a bid to pump up economic activity in the eurozone. Taking a page on quantitative easing (QE) measures from the U.S. and Japan, the ECB is attempting to raise the supply of money in the European economy. Last week, ECB executive board member Yves Mersch, former Governor of the Central Bank of Luxembourg, commented that large asset purchases by the ECB would expand the gap between rich and poor.
On October 20, the ECB began purchasing covered bonds and is targeted to be buying asset-backed securities later this year. Covered bonds are backed by a pool of loans such as mortgages. There is no targeted amount for the covered bond purchases. The central bank has been purchasing short-dated covered bonds from a swath of countries.
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