LONDON (MNI) – The Bank of England Asset Purchase Facility acted
as backstop in stressed corporate debt markets in the fourth quarter,
coming in as a buyer of last resort, according to the central bank.
The BOE’s activities in the corporate bond market have been
overshadowed by its bulk buying of Gilts through quantitative easing,
but the central bank stepped up its activities in the corporate bond
market in Q4, according to its APF report published Monday.
“Activity in the Bank’s APF was increasingly driven by the
deteriorating liquidity conditions in corporate debt markets, with an
increase in both purchases and sales of corporate bonds in 2011 Q4
compared with the previous quarter,” the report said.
The Q4 report showed net corporate bond purchases by the APF stood
at Stg859 million, a figure dwarfed by the total of near Stg250 billion
of Gilt purchases by the scheme. The APF has been mandated to complete
Stg275 billion of asset purchases by early February.
The BOE corporate bond operation were stepped up with liquidity
thin.
“Market contacts suggested that dealers had run down their stock of
bonds to reduce their risk positions as conditions became more stressed.
This meant that the scheme acted as a backstop, with increased purchases
of bonds,” the APF report said.
“But there were also periods of stronger investor demand.
Dealers with reduced stocks were unable to satisfy this demand and so
they used the scheme as a source of supply,” it added.
Conditions have improved in the corporate bond market since the Q4
period covered by the BOE report. A better tone in European government
bond markets, most notably in the peripherals, has fed through to a
tightening in corporate bond spreads and improved liquidity and the
corporate bond new issues pipeline has started up again.
–London Bureau; Tel: +4420 7862 7491; email: drobinson@marketnews.com
[TOPICS: M$B$$$,M$$BE$]
