ECB Policy Drives Down Corporate Bond Yields And Bank Loan Rates
BNP Paribas | Oct 26, 2016 06:10AM ET
Rates on bank loans below 1 million euros are higher than those for larger amounts (smaller companies usually have less diversified markets and a lower financial strength) but both are on a downward trend since 2012 thereby mimicking the decline in corporate bond yields. These in turn have followed the decline in the sovereign spread versus Bunds.
Successive ECB actions (Draghi’s “believe me it will be enough” speech in July 2012, negative deposit rates in 2014, QE in 2015) have influenced the economy via capital markets as well as bank lending conditions. Interestingly, corporate bond yields have been below the rate on large bank loans since the end of 2012 whereas between 2003 and 2008 they were in line (and from 2009 until the end of 2012 even significantly above). This might reflect that investors, on the back of central bank policy, now accept a low reward for credit risk.
by William DE VIJLDER
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