315 billion reasons to like high yield bonds?
According to Fidelity International, roughly $215 billion of US debt and €100 billion of European...
In March this year, Mario Draghi, president of the European Central Bank (ECB), announced that the asset purchase programme (a form of quantitative easing, which had previously involved the ECB buying European government bonds) would be extended to include the purchase of euro-denominated non-bank investment grade corporate bonds too.
Today marked the start of those monthly purchases which, together with the ongoing government bond purchases, are estimated to be in the region of €80bn*.
Commenting on the extended purchase programme, Darius McDermott, managing director of FundCalibre, said: “The new purchases have the aim of instilling more confidence in European company management, in the hope that they start to increase their own spending (for example, updating technology or machinery or simply growing their business), and a more virtuous and self-sustaining recovery gets underway.
“As a side effect, the ECB is effectively extending the bond buying cycle, but this doesn’t mean the inevitable reversal (caused by interest rates finally rising) is no longer a concern and it reinforces the need for careful credit analysis by bond fund managers in the meantime.
“Leaving aside the thorny issue of a possible Brexit and the ramifications it may have on the wider European economy for a moment, the move should be supportive of both bonds and equities. It is, however, the latest phase in what is the greatest financial experiment of our lifetime and the eventual outcome is impossible to know.”
*government and investment grade bonds. The exact amount used to purchase investment grade bonds is estimated to be around €5–10bn.