Category: Borrow Money
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Dont get me wrong. I like corporate bonds as an asset class. And I think private sector investors like you and me should actively consider owning corporate bonds at any given time as part of managing a broadly diversified portfolio. Instead, where I start to think it becomes a REALLY lousy idea to buy corporate bonds is when youre talking about a major global monetary policy institution like the European Central Bank (ECB), which is set to begin buying corporate bonds as part of its ongoing once extraordinary now pedestrian stimulus program. Global central banks have long ago crossed the market intervention line, which is bound to only add to the eventual unintended consequences down the road.

The Latest Policy Stew

The ECB announced in March its intention to purchase corporate bonds as part of expanding its stimulus program that has already brought us beauts such as negative interest rates (this has really worked well so far for the Europeans and the Japanese, right? I hear that it has really helped already struggling banking institutions to have the front end of their respective yield curves pushed deep under water, except that it hasnt at all. What a surprise, since paying somebody to borrow money from you and charging them to deposit money with you makes so much sense in a rational world). Under the program, six national central banks within the Euro Zone will go out and buy investment grade corporate bonds in both the primary and secondary market.

The ECB is expected to start slowly before eventually bringing the program up to purchases of around 5 billion to 10 billion euros per month. The ECBs hope is that the program will lower the financing costs for not only larger companies in the Euro Zone (EZU) but also smaller and mid sized companies that could more meaningfully benefit from lower borrowing costs.