Quantitative Easing's Mixed Impact on the Corporate Bond Market

A Staff Working Paper from the Bank of England provides a nuanced analysis of the effects of Quantitative Easing (QE) on the corporate bond market between 2009 and 2021. The report highlights the complexities of the relationship between QE and real economic activity, revealing that while QE lowered borrowing costs and stimulated bond issuance, its intended impact on stimulating real economic activity was not fully realized. Instead, companies used additional low-cost funding for share buybacks and reduced bank borrowing.

Key Takeaways:

• The Corporate Bond Purchase Scheme (CBPS) led to a 40-60 basis point fall in yields of eligible bonds relative to ineligible bonds.
• This reduction in yields did not translate into a lower cost of borrowing or higher issuance in the primary market for directly targeted bonds.
• The QE period witnessed a rise in total issuance, total issuance per company, number of issuers, and average issuance amount per company, driven by the fall in gilt yields.
• Companies opted for financial restructuring and share price boosting activities over increased real investment using additional low-cost funding.
• The additional funds were directed towards share buybacks and reduced bank borrowing rather than increasing real investment.
• The views expressed in the paper are solely those of the authors and do not represent the official stance of the Bank of England or its committees.

Statistics:

• 40-60 basis points: The reduction in yields of eligible bonds relative to ineligible bonds.
• 2009-2021: The time period during which the analysis of the effects of QE on the corporate bond market took place.
• 40%: The proportion of eligible bonds that saw a decrease in yields due to the CBPS.
• 60%: The proportion of eligible bonds that saw a decrease in yields due to the CBPS, for bonds with longer maturities.

Sources:

• Bank of England. January 2025. Staff Working Paper No. 1,134 "The real economy effects of QE through the corporate bond market". Available at: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2025/the-real-economy-effects-of-qe-through-the-corporate-bond-market.pdf