Ifo attacks ECB on bonds

The head of a leading German think tank has attacked the purchase by the ECB which got under way yesterday of corporate bonds, saying the quantitative easing measures designed to boost the eurozone economy and which involve buying debt directly from big companies was “dangerous”.

Ifo president Clemens Fuest said that the ECB was now “starting to behave like a commercial bank” even though it did not have the skills to assess the risks.

“There is a danger that ailing companies will pass their risks onto the ECB.

"Although restricting the purchases to bonds that are already traded in the financial markets — secondary market purchases — would only protect the ECB from purchasing overpriced bonds to a limited extent, it would at least send a signal that the purchase programme is not a vehicle for mutualising risks from bad corporate loans,” he said.

The ECB yesterday entered new territory in its efforts to stimulate the eurozone, plunging into the corporate bond market and buying the debt of some of the continent’s biggest companies.

Purchases included securities issued by Anheuser-Busch InBev, the world’s largest brewer; Telefonica, Spain’s former telecommunications monopoly; Siemens, Europe’s biggest engineering company; Assicurazioni Generali, Italy’s top insurer; Telecom Italia; French car maker Renault and utilities Engie and RWE, according to sources.

Investors are watching for an indication of whether they were right to pile into investment-grade corporate bonds on the promise of ECB president Mario Draghi’s purchases.

The ECB’s intervention in the government bond market over the past year has pushed yields down to records.

“Draghi knows the ECB needed to come out with a big punch on the first day of its corporate purchase programme to maintain credibility and confidence in his willingness to act,” said Regina Borromeo, a money manager at Brandywine Global.

The ECB is adding investment-grade corporate notes to its €80bn monthly purchase programme, which already includes covered bonds, asset-backed securities and sovereign debt.

The central bank has bought more than €800bn of government bonds since March 2015.


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