Pretty thick stuff, but my understanding is that ECB bond-buying can make public companies easier targets for private equity buyouts, thereby reducing the number of credit-worthy companies that the ECB can bless by buying their debt.

Anyway, this is interesting:

    But, with the ECB buying around half of the traded daily volume of euro corporate credit, and overseeing a 65 percent spread-tightening since March of bonds eligible for purchase, according to Citigroup Inc, its presence in the market is profoundly reshaping the euro fixed-income landscape — and the equity market too given the heightened potential for debt-financed M&A, buybacks, and a prospective rise in LBOs.

Half of the Euro corporate credit market is the ECB? I might argue that they shrunk the market by 50%, because they aren't buying those bonds as an investment of any sort.

kleinbl00:

For everyone else that doesn't read Bloomberg:

    In other words, the unleashing of the animal spirits in the financial-sponsor world through LBOs, driven by record-low debt costs, would haunt bond investors given the ensuing rise in corporate leverage, and the ECB could come under fire for generating volatility in credit spreads.

    LBOs have been criticized in the boom years as an example of financial engineering and predatory capitalism, but the analysts don't mention the prospect of reputational risks for the ECB in the event of an uptick in buy-outs.

...

Yes, I know that none of that makes any sense in the real world. That's kind of the point.

Here's the mile-high on this whole affair, as written in Human:

The ECB is the group that tries to keep European banking and investing stable. They're buying pretty much whatever the European stock and bond markets are selling. On any given day, half the money out there is actually the government.

Because the bond markets can pretty much sell whatever they want, they're selling to the government and using that money to buy up shares of stuff that they want to take the fuck off the market. This upsets people because they argue that the whole point of propping up the market is to keep it viable, not to make it go away.

Devil's advocacy: Perhaps the ECB has decided that the most stable position for the European economy is a vastly diminished market. I mean, really - you've got a business press that loses their shit over public investment. You've got a business press that loses their shit over privatization. And you've got a business press that loses their shit over the status quo.

I'm coming around to the idea that the central banks are treating the markets like the spoiled children they are. "Here's some money, now go away and take your shares with you."


posted 2784 days ago