The ECB Prepares the Way for Buying Junk Bonds
The central bank is accepting non-investment grade debt as collateral. Why not follow the Fed and buy higher-quality junk bonds too?
Follow the lead?
Photographer: Bloomberg/BloombergThe European Central Bank’s meeting on April 30 might be its most important as it tries to manage the devastating economic impact of the Covid-19 virus. While its reaction so far has worked, it will need much greater firepower in the future. It will also have to be much more flexible in how it applies its rules on asset purchases.
The biggest immediate question, as revealed by my Bloomberg News colleagues, was whether the central bank should relax its eligibility criteria to accept sub-investment grade debt as collateral in its funding facilities. That was answered on Wednesday night, when the ECB said it would accept junk bonds as long as they were rated at least BBB- as of April 7.