The Corporate Bond Purchase Scheme (CBPS or “the Scheme”) was launched in August 2016. It imparts monetary stimulus by lowering the yields on corporate bonds, thereby reducing the cost of borrowing for companies. It does this by triggering portfolio rebalancing into riskier assets by sellers of assets, and by stimulating new issuance of corporate bonds.
At its special meeting on 19 March 2020 the MPC judged that a further package of measures was warranted to meet its statutory objectives. It voted unanimously to increase the Bank of England’s holdings of UK government bonds and sterling non-financial investment-grade corporate bonds by £200 billion to a total of £645 billion, financed by the issuance of central bank reserves.1
In its monetary policy statement for the meeting ending 25 March 2020, the MPC commented on how this £200bn would be split between gilts and corporate bonds, noting that “the majority of additional asset purchases would comprise UK government bonds. Some additional sterling non-financial investment-grade corporate bonds would also be purchased”.2
In line with the MPC’s statement, the Bank intends to purchase at least £10 billion of eligible sterling non-financial corporate bonds in coming months, taking the stock of purchased corporate bonds to at least £20 billion. It expects to make these purchases at a significantly faster pace than in the 2016 scheme. Accordingly the Bank has increased the maximum purchase size per bond in each auction from £10mn to £20mn. The Bank will keep the size of the Scheme and purchase pace under review in light of prevailing market conditions, market function and any future MPC decisions.
The Bank will undertake operations via reverse auctions beginning on 7 April 2020. The Bank intends initially to hold three purchase operations a week on Tuesdays, Wednesdays and Thursdays.
Corporate bond purchases will commence using the eligible list published on 22 August 2019, ahead of the 2019 reinvestment round, adjusted for maturities and securities that no longer meet the eligibility criteria.3 The Bank will update the list of eligible securities periodically, typically monthly. The Bank expects to publish a first update to the eligible list in mid-April. Bonds with standard par call options within 3 months of the maturity date may be considered eligible for purchase going forwards and may therefore, in the Bank’s sole discretion, be included in any updated eligible list.
As set out when the CBPS was launched in 2016, the Scheme is “designed to purchase a balanced portfolio of bonds across eligible issuers and sectors, so that we purchase a representative portion of the market and do not influence the allocation of credit to particular companies or sectors of the economy”.4 The Bank will continue to purchase bonds across eligible sectors, such that the Scheme’s aggregate holdings are representative of each sector’s share of the total outstanding face value of eligible bonds.
The Bank expects to publish updated representative sector shares, alongside the update to the eligibility list in mid-April 2020. The Bank will keep its approach to targeting these sector shares under review in light of general market conditions and its experience of operating the Scheme, including the liquidity of individual sectors.