Thursday, July 21, 2016

"Which corporate bonds has the ECB been buying?"

Following up on yesterday's "Climateer Line of the Day: In With The In Crowd Edition".
From Bond Vigilantes:
Having recently blogged about the potentially eligible universe of the Corporate Sector Purchase Programme (CSPP), we were naturally eager to find out which corporate bonds the European Central Bank (ECB) has actually been buying. On Monday, the ECB eventually published the highly-anticipated list of their bond holdings.

Except that’s not what happened. Instead of the ECB releasing a neat consolidated list, each of the six national central banks carrying out the bond purchases disseminated their statements separately on the ECB’s webpage. Apart from the blatant lack of integration, they didn’t appear to be overly concerned with consistency either (see below). In fact, they took inconsistencies to almost comic levels. Most banks chose to only state International Securities Identification Numbers (ISINs), presented in a variety of layouts. The German Bundesbank, being a stickler for details, felt the need to go above and beyond by additionally mentioning security and issuer names – Dankeschön. Banco de España did not consider it necessary to provide an English language version of their document – No importa. The other banks did, even the proud Banque de France, which however didn’t release any security identifiers on the ECB’s webpage but kindly told interested readers to do their own research on Bloomberg – Incroyable!
Before diving into the analysis, it is important to point out that we only know the total volume of purchases – EUR 10.43 billion between 8th June and 15th July – and the identity of the 458 corporate bonds that have been bought in this period. But we do NOT have the portfolio weights. The average position size is EUR 22.8 million but the dispersion around the mean is entirely unknown. To give an example, Deutsche Bahn is the most popular issuer in terms of ISIN count: 12 of their bonds have been purchased, which puts them ahead of Telefonica (11) and BMW (10). But without knowing the size of the holdings we cannot compute weighted averages and are thus unable to draw any firm conclusions with regards to the actual risk exposure towards Deutsche Bahn.

Nonetheless, we can apply basic percentile analysis to get a better understanding of the ECB’s corporate bond holdings. The median asset swap (ASW) spread and median yield to maturity (YTM) of the CSPP holdings are 20 bps and 14 bps, respectively. In comparison, the corresponding median values of the EUR-denominated investment grade (IG) non-bank index, a crude proxy for the eligible bond universe, are both above 30 bps. The middle 50% of CSPP spread and YTM values (i.e., from the 25th to the 75th percentile) are less dispersed and shifted to lower values, compared to the index. Remarkably, more than a third (c. 36%) of the CSPP bonds are currently trading at a negative YTM. This is an indication that the CSPP holdings might be more defensively positioned than the index, but as mentioned before we do not know the portfolio weights. In terms of duration, CSPP median (5.1 years) and dispersion are very close to the index....MORE

Frontrunning the ECB: "Investors in corporate bond ‘land grab’ ahead of ECB buying"--UPDATED
"The ECB’s momentous step into corporate asset purchases"
Deutsche Bank On the European Central Bank: We Are Governed By Idiots
Pictet: "The Pricing And Valuation Of Bonds No Longer Reflects Fundamentals" - Why This Matters