David Mallaburn, Matt Roberts-Sklar and Laura Silvestri.
The Bank of England’s August 2016 monetary policy package included the £10bn ‘Corporate Bond Purchase Scheme’ (CBPS). But who did the BoE buy those bonds from?
Using proprietary transaction level data from the FCA, we look at trading activity in the secondary market (i.e. we do not include primary bond issuance or direct Bank of England purchases) when the Bank was purchasing these bonds.
Under the CBPS, the Bank purchased corporate bonds from major dealers over an 8-month period. In order to meet this increased demand, the dealers could either sell from their own inventory, or on behalf of investors. Analysing activity in the secondary market gives us insight into whether it was dealers or other market participants that were the ultimate sellers to the Bank, which in turns gives information on how the policy works.
Figure 1 shows the net buy and selling behaviour by different investor types in CBPS-eligible bonds over the duration of the CBPS. When the scheme was announced in August 2016, insurance companies and asset managers (green) were net buyers, potentially buying in anticipation of increased demand in the future.
During the scheme (October 2016 – April 2017) insurance companies and asset managers became net sellers, with dealers (yellow) taking the other sides of these trades (and selling on to the Bank). This implies that insurance companies and asset managers were the ultimate sellers of over half of the bonds bought by the Bank, with the remainder coming from dealers’ balance sheets.
Figure 1: Net buying and selling of CBPS-eligible sterling corporate bonds
David Mallaburn, Matt Roberts-Sklar and Laura Silvestri works in the Bank’s Capital Markets Division.
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Forgive me for perhaps not understanding enough about the background rationale driving the CBPS, however was it not foreseen by policy members at the BoE that this would simply be a guise for a profit making exercise for the asset managers and insurance companies that caught wind of this?