Shares rally as ECB considers corporate bonds

The European Central Bank is considering buying corporate bonds on the secondary market and may decide on the matter as soon as December, with a view to begin purchases early next year, several sources familiar with the situation have told Reuters.

European shares rallied on the news, led by banks and shares in peripheral countries. The euro fell more than half a cent against the dollar and credit indices tightened sharply. Policymakers are desperate to revive the eurozone economy, which is barely growing and dogged by low inflation of 0.3%, far below the ECB’s target of just below 2%.

The ECB has already carried out work on corporate bond buying, which would widen out the private-sector asset-buying programme it began on Monday. It is hoping these measures will foster lending to businesses and thereby support the eurozone economy.

“The pressure in this direction is high,” said one person familiar with the work inside the ECB, speaking on condition of anonymity. An ECB spokesman, however, said of such purchases: “The Governing Council has taken no such decision.”

The ECB has already cut interest rates to record lows, offered banks cheap loans and begun buying covered bonds, which are backed by high-quality assets. It also plans to start buying asset-backed securities, or bundled loans, later this year.

Stressing that the ECB alone cannot tackle the eurozone’s woes, central bank president Mario Draghi has urged crisis-hit countries to get their economies into shape with reforms.

The ECB’s policymaking Governing Council could discuss the possibility of making corporate bond purchases at its December meeting, two of the four sources Reuters spoke to said. All four said such plans were being discussed.

The policymakers could decide at the December meeting to go ahead with the purchases, but such a step is not certain. Should the Council decide in December to proceed, the purchases on the secondary market could begin in the first quarter of 2015, one of the sources said.

The ECB will also release updated economic forecasts from its staff at the December meeting.

Draghi has heightened investors’ expectations by saying that the ECB’s asset purchases should help expand its balance sheet back towards levels seen in early 2012, when it briefly topped €3tn. The balance sheet now stands at some €2tn.