The ECB and its national central bank agents began buying debt in €2m-€5m clips on the near-crossover part of the credit spectrum, primarily from the telecommunications sector, before adding blocks as big as €25m on Thursday from large cap European corporates, such as Volkswagen, according to market participants.
Buying across maturities, the credit spectrum and sectors, the ECB is being hailed as having matured as a markets investor than before. That may assuage fears some held that a single-minded investor base could set off extraordinary swings in prices, should risk sentiment change — a scenario seen in other markets.
Enigmatic central bank
“In the context of the volatility we saw in the first two months of the year, I think that the bonds the ECB will purchase will be a much less volatile part of the market,” Alexandre Caminade , CIO for credit, Europe at Allianz Global Investors, told GlobalCapital. “So the technical impact of the ECB is that volatility will be more present on the other part of the credit markets: bank debt, CDS and iTraxx indices.”
Holders of bonds eligible for the ECB’s Corporate Sector Purchase Programme (CSPP) can be fairly sure that there is at least one big buyer out there for them. But if sentiment turns against taking on risk, investors in bonds outside the ECB’s remit will lack that surety.
“I fear the banks won’t take the risk to build up inventories on bonds they will struggle to recycle,” Caminade said.
But others say the ECB is concealing its strategy well.
“It has been very sophisticated,” said one syndicate banker. “They are not taking any price, they have a methodology in what they are looking at in pricing, which I find quite sophisticated.
“[The ECB’s purchases have been] diversified in sector and tenor and it’s hard to predict what the trend is because they are going after a diversified strategy,” the banker said. “Today, some of the names that they have been looking to purchase were not names that they asked for yesterday.”
Another banker agreed that the strategy is a sage one. “The ECB is wise to keep some cards close to its chest by not disclosing the volumes it is buying or publishing the list of issuers eligible for purchase under CSPP. Keeping market participants uncertain ensures that investors are not able to trade on the assumption that they know what the ECB is going to do.”
And given the one-sided nature of today’s markets where risk aversion precipitates violent swings in prices, that might be exactly what the ECB intends.
Bank of America Merrill Lynch analysts warned in a note last Friday that increased transparency from the ECB could be disastrous.
“We believe that liquidity could get a lot worse (wider bid-offers), in names that are clearly shown to be ‘ECB favourites’. The alternative — where the market is left guessing about ECB purchases — could actually have created a more level playing field for the corporate bond market, in our view,” they said.
Both days of central bank involvement were thus interpreted as a signal — ranging from a worrisome to a reassuring one — that the ECB is willing to buy across the investment grade spectrum and maturity curve, and in size.
“They’re sending a signal that they’re here for real,” said one London-based portfolio manager.
The central bank was also said to buy insurance company debt — including, to the surprise of some, captive auto insurers. This bodes well also for issuers of bank debt, which, though ineligible for CSPP, are likely to benefit from overall tightening in financials debt spreads.
Alexandra van Gyseghem, head of euro fixed income and credit at Amundi, agreed that the signal is a good one.
“In May, there was the fear that we might have a repeat of the sovereign market’s experience of PSPP, with tightening at announcement and spread widening once it began. I think that the ECB… will be willing to buy larger amounts.”
Dealer no deal
Perhaps surprisingly dealer inventories have remained light on corporates, market players said. Axes — specific interests to buy or sell — from dealers have remained steady in corporates, though those for covered bonds and public sector assets, which the ECB has been buying for some time, have increased in recent months.
Anecdotal evidence suggests that is changing. Van Gyseghem said Amundi has been contacted by dealers in recent days.
“Banks seem to have more paper in inventory,” she said. “They’ve asked us to send some, but we aren’t very interested in selling today,” she added, referring to optimism that prices across the world of credit in Europe will rise due to QE.
But the lack of significant inventory build-up avoids the widening spread and trader disappointment that followed the beginning of the covered bond purchase programme in 2014.
GlobalCapital has examined aggregated data from MTS B2SCAN — a pre-trade service which shows bank inventories, axes and runs to investors — and there was no significant increase in dealer axes in corporate bonds, either running up to the expected March 10 announcement of the programme, or in the months between the announcement and the start of buying on Wednesday.
B2SCAN is linked to MTS BondVision, a multi-dealer to client bond platform at MTS, and has 26 dealers contributing their axes in corporate bonds, covered bonds and SSAs.
The platform recorded corporate axes of €107bn in January, €96bn in February, and €87bn in March (when the programme was announced). In April, interest jumped again to €106bn — but this is likely to be the effect of a new quarter, rather than the announcement of the programme.
In any case, dealer axes in covered bonds and SSAs increased more markedly than in corporate bonds over the same period. Dealer axes in covereds and SSA were €187bn in December 2015, rising to €280bn in January, €432bn in February, €440bn in March and €445bn in April.
The number of axes in corporate bonds remained flat in over the period, increasing from 22,400 in December to 25,670 in April, while the combined total axes in covered bonds and SSA rose from 23,550 in December to 40,000 in April.
Bonds that saw particularly active trading in the period also offer little guidance to the state of the market before the ECB’s CSPP announcement.
According to TradeWeb data, four of the top 10 most active euro-denominated IG corporate bonds were tranches of AB Inbev’s record-breaking €13.25bn acquisition bond, issued on March 16, shortly after the ECB announced it would be buying corporate debt on March 10.
This likely reflects the tendency of liquidity to concentrate in recently issued and large deals, rather than specific pre-ECB interest, though central bank buying was reported in the name on Wednesday.
The ECB was also said to have been buying RWE, Telecom Italia, Telefonica and Generali on Wednesday.
Telecom Italia’s 3.625 May 2026, issued on May 18, was the 10th most active during May, according to TradeWeb.
With a rating of Baa1/BB+/BBB-, it is on the cusp of eligibility for ECB purchases and has rallied hard on ECB purchases. It was bid at 103.31 on June 7, but traded above 105 on June 9, according to data from MarketAxess.
But other names did not see much exceptional turnover in the period before the ECB began to purchase.
Telefonica’s 1.46% April 2026 was 36th most traded note during the month of April, when it was issued, but dropped out of the top 100 in May. RWE had no issues in the overall top 100 by turnover; neither did Generali, though its €850m tier two, issued last week, was being heavily traded on Wednesday, according to MarketAxess.
On Wednesday, the ECB is said to have been purchasing mainly using electronic platforms, in clips of €2m-€5m. On Thursday, it was reported buying a broader range of assets in large sizes, and calling dealers directly.
It tendered for an electronic trading platform in July last year, with TradeWeb winning the contract. At the time, it said the platform would be used for investing the ECB’s “own funds” — a €19bn portfolio of mainly euro-denominated securities.
The tender specified that the platform should allow trading in European government bonds and bills, euro denominated corporate bonds, SSA bonds and covered bonds. The ECB is now purchasing all of these asset classes through its quantitative easing programmes.
However, it also specified that the platform be usable on senior unsecured bank bonds, an asset class the central bank has avoided so far.
Additional reporting by Lewis McLellan