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ECB adds state-backed corporate bonds to its QE purchase list

Thursday, July 2, 2015 - 17:41
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The European Central Bank added state-backed company debt to the list of assets eligible for purchase under its quantitative easing program.

[LONDON] The European Central Bank added state-backed company debt to the list of assets eligible for purchase under its quantitative easing program.

Italian utilities Enel SpA, Snam SpA and Terna SpA - Rete Elettrica Nazionale were among borrowers whose debt may now be purchased, according to the ECB's website.

The central bank is seeking to inject 1.1 trillion euros into the euro area to foster lending and growth as the crisis in Greece roils markets across the region. Since October, the Frankfurt-based ECB has acquired more than 295 billion euros of covered bonds, asset-backed securities, agency and sovereign debt.

"The ECB increasing its eligible pool of assets shows the central bank has kept powder dry for the Greek crisis, ready to intervene closer to the real economy," said Alberto Gallo, head of macro credit research at Royal Bank of Scotland Group Plc in London. "So far purchases are around state-owned corporates, but may extend further to high-quality investment-grade names."

The ECB intends to use its asset-purchase program to buy 60 billion euros a month of sovereign bonds, agency debt, covered bonds and asset-backed securities through at least September 2016 to revive inflation. It has previously said the list of eligible agencies may be expanded if needed for monetary-policy reasons.

Praet Executive Board member Benoit Coeure said in May that the central bank may "frontload" QE purchases before the European summer holiday period, when liquidity is lower. He and colleague Peter Praet have also said officials have the flexibility to adjust the program to curb any unwarranted euro-area market volatility related to Greece's financial crisis.

In June, ECB's Governing Council decided that, owing to the lack of government and agency bonds needed to accommodate the Estonian benchmark allocation under the purchase program, the Bank of Estonia could conduct substitute purchases via the acquisition of marketable debt instruments issued by the Estonian public non-financial corporate Elering AS.

"This is the first time we've seen these types of names added," said Matthew Cairns, senior supranational, sub-sovereign and agency strategist at Rabobank International in London. "A name like Enel, which is part government owned, can be seen as a corporate."

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