Share Prices & Company Research

Press Release

26 September 2016

Bank of England begins corporate bond purchase programme

From tomorrow (September 27th) the Bank of England (BoE) will start its corporate bond purchase programme, which will last for an “initial” period of 18 months. Christopher Price, Investment Specialist said:

"The BoE said it will be buying bonds from non-financial companies which it deems make a significant contribution to the UK economy. On its initial list there are 270 bonds from approximately 100 companies, including Vodafone, Transport for London, Apple and German automaker Daimler. The bonds must be of investment grade quality, have more than 1 year to maturity and have a total value of at least £100m. The BoE will try to avoid buying too many bonds of any one company.

"The move is likely to push up corporate bond prices, which in turn reduces the yield on them. The impact of this should make it easier for companies looking to borrow and encourage them to issue debt. It is expected that the programme will provide more liquidity to the market and may entice overseas buyers to buy bonds issued in Sterling.

"Whilst existing holders of the bonds are likely to benefit from a rise in the price, those seeking income will see yields fall. This has heightened concern that income seekers may take greater risk in the hunt for income. Another concern is that the size of the UK corporate bond market is small, so a large buyer such as the BoE entering the market may drive UK investors to look overseas as an alternative, bringing currency risk into the equation."

Investments can fall in value and you may get back less than you originally invested. The payment of income and the return of capital could be in jeopardy in the event that the parent company has problems meeting its financial obligations. Past performance and forecasts are not a reliable indicator of future results or performance.

Bank of England begins corporate bond purchase programme
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