It was European Central Bank President Mario Draghi's most audacious -- or most desperate -- stimulus plan to date. Either way, he may come to regret at least one part of it.
As well as cutting all three main interest rates and increasing bond purchases, Draghi said on Thursday the ECB will also start buying investment-grade, euro-denominated bonds issued by companies outside the banking industry.
The ECB has already bought 787 billion euros ($867 billion) of assets, mostly in the form of government bonds and asset-backed securities, since October 2014. The monthly rate of purchases will rise to 80 billion euros, up from 60 billion euros, and company debt will be included starting around the end of the second quarter.
The market reaction was immediately positive -- the drop in the iTraxx credit-default swap index was the biggest one-day tightening in more than three years.
There are even signs lower-rated borrowers could benefit, highlighting that the announcement is already having the desired impact of raising asset prices. The Markit iTraxx Europe Crossover Index of credit-default swaps on mostly sub-investment-grade borrowers also tightened substantially, at one point having its best day since Oct. 2011.
The region's intractable low-inflation problem means Draghi really needs to look down the back of the sofa for any tool that might work. But this one might create more problems than it solves, and the ECB should probably have left well enough alone.
The companies eligible for ECB purchases are not, broadly speaking, the needy children of the corporate bond market. These names tend to be fairly well known among debt investors, perhaps with a presence abroad, and so are better-placed to raise money in tougher conditions. They're already sitting on a lot of cash.
The move also exposes the ECB to political risk. If it bought bonds of a company that was embroiled in a scandal (take a bow, Volkswagen), or firing workers, it would be at risk of being seen to endorse those actions.
And it doesn't help the funding prospects for small companies, which have already been struggling to get funding from their banks. They're too small to issue in the corporate bond market.
When you put the measure together with negative interest rates, which may squeeze bank profitability, there's a risk that small companies may actually be harmed if lending is reduced or made more expensive. Draghi has promised the financial industry a new round of ultra-cheap funding to soften the blow from negative rates -- on condition banks increase their lending.
The corporate-bond program is only a temporary fix. This raises the question of what happens to the spread that companies pay over government debt when the program stops. A market that loses a big buyer will surely suffer a hit to prices.
This leads to the problem of the exit strategy. One option would be for the ECB to keep buying until market conditions can handle its exit. That's always a tricky call, and anyway may be a very long way away.
But a firm deadline raises its own problems. When the time comes, Draghi will have to choose between sticking to his word and heading for the door, which might make funding conditions worse. Or he could set aside the deadline and say he'll stay put.
Either way, the central bank may well be stuck backing a market that it dislocated itself.
Draghi said committees at the ECB will now review the specifics of buying non-bank bonds. They will need to tread carefully.
It was a bad start to the year, but sentiment had started to improve. Corporate bond spreads had been tightening, and equities showing some signs of life. It's hard to see this plan as anything other than an indicator of how desperate Draghi has become.
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Lionel Laurent in London at email@example.com