BOE's Plan for Corporate Bonds Draws Backlash in Some Quarters

The Bank of England's corporate-bond purchase program, announced on Thursday, has been met by skepticism from some credit market analysts, who say precedents across the Channel don't bode well for the program's ability to stimulate issuance.

While credit market observers reckon the BOE's corporate-bond program will engineer a modest reduction in borrowing costs across the sterling bond market as a whole, they say the program could exacerbate a shortage of liquidity and crowd out private investors.

"The BoE didn't quite kitchen sink it, but they have given it a mighty shot in the arm," Suki Mann, an independent credit strategist, wrote. "It's more of the same medicine though. It didn't work before and we don't believe it will work again."

Mann, a former head of credit strategy at UBS AG, said the BOE's corporate-bond purchase program is counter-productive because it reduces market liquidity by expanding the purchasing power of a large and price-insensitive buyer in the market: "They're not fixing this market, instead they are going to annoy and frustrate investors just like the ECB are doing in the euro-debt market," he said.