Global corporate bond issuance: What role for US quantitative easing?

•We analyse the link between global corporate bond issuance and US quantitative easing (QE).•Both purchases and holdings of MBS and Treasuries by the Fed have a strong impact on corporate bond issuance.•Support the “gap-filling” theory (Greenwood et al., 2010) where corporate bonds replace the asset...

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Bibliographic Details
Published in:Journal of international money and finance 2016-02, Vol.60, p.114-150
Main Authors: Lo Duca, Marco, Nicoletti, Giulio, Vidal Martínez, Ariadna
Format: Article
Language:English
Subjects:
Bank loans
Bond issuance
Bond issues
Corporate bonds
Economic crisis
Emerging markets
Federal Reserve
Federal Reserve monetary policy
Hierarchies
Monetary policy
Quantitative easing
Spill-overs
Studies
United States
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Summary:•We analyse the link between global corporate bond issuance and US quantitative easing (QE).•Both purchases and holdings of MBS and Treasuries by the Fed have a strong impact on corporate bond issuance.•Support the “gap-filling” theory (Greenwood et al., 2010) where corporate bonds replace the assets removed from the market.•A counterfactual analysis shows that bond issuance in emerging markets since 2009 would have been halved without QE. The paper analyses the link between global corporate bond issuance and US quantitative easing (QE). It finds that purchases and holdings of MBS and Treasuries by the Fed have a strong impact on gross corporate bond issuance across advanced and emerging economies. The results are robust to a large number of checks, including controlling for the reduced supply of domestic and international bank loans in the aftermath of the global crisis which might have induced the corporate sector to issue more bonds. Our results support the “gap-filling” theory (Greenwood et al., 2010) where corporate bonds replace the assets removed from the market by large scale asset purchases. Specifically, asset holdings and purchases crowded out investors from the markets where the Fed intervened and accelerated portfolio rebalancing across assets and countries leading to stronger corporate bond issuance across the globe. A counterfactual analysis shows that bond issuance in emerging markets since 2009 would have been halved without QE.
ISSN:0261-5606
1873-0639
DOI:10.1016/j.jimonfin.2015.07.013