More than a year has passed since the Bank of England announced its £10bn Corporate Bond Purchase Scheme (CPBS). While the scheme was completed by April, much more quickly than originally anticipated, its positive impact on the market has been lasting.
Prior to the Bank’s intervention the importance of the sterling corporate bond market was under threat, in part due to poor secondary liquidity and a lack of supply from borrowers drawn to the depth, convenience and competitive pricing of the euro and dollar markets. Even UK-centric borrowers such as Royal Mail favoured the euro market over their home turf.
The backstop bid that the Bank’s scheme provided gave market makers the confidence to increase secondary liquidity through tighter bid/offer and larger size. There was concern as the scheme drew to a close in April that the improved liquidity would diminish but this hasn’t happened. Higher volumes have persisted and market participants are more confident trading larger blocks. A marked increase and greater variety of new issuance over the course of this year (gross issuance year to date has already surpassed full year 2016 volumes) has also helped to define market levels and encourage further secondary activity.
To this end, the Bank’s intervention has been a great success. A more dynamic market presents further opportunities for us as active managers to express views and add value to portfolios for the benefit of our clients.