A Bank of England (BofE) programme to regularly snap up corporate bonds has commenced on 27 September.
First unveiled as a concept on 4 August, the Corporate Bond Purchase Scheme (CBPS) has been devised to impart monetary stimulus to the UK economy by:
In its final details of the scheme’s procedures, published on 12 September, the BofE revealed that there would be three purchasing operations per week, on Tuesdays, Thursdays and Fridays, each running from 11am for 45 minutes.
During every session, the Bank will stand ready to buy up to £10m of each, eligible bond.
Lists of approved securities lined up for each week’s worth of operations will be published on the BofE website, and via wire services, on the preceding Friday.
The Bank notes that bonds of the following types or characteristics will be eligible for purchase through the scheme:
In its eligibility criteria for corporate participants, the BofE stresses that only firms that make a “material contribution” to the UK economy will be allowed to take part.
It notes: “Companies, which may be incorporated in the UK or other jurisdictions, with a genuine business in the UK will normally be regarded as meeting this requirement,” as will those with significant employment and/or a major headquarters in the territory.
The Bank will also consider whether an applicant firm generates significant revenues, serves a large number of customers or has a number of operating sites in the UK.
“For example,” it points out, “a company headquartered outside of the UK but employing hundreds of people… and generating sales of £20m in the UK would be considered to make a material contribution. As a result, investment-grade bonds issued by such a company would normally be considered eligible for purchase.”
However, it added: “Some companies may choose to issue sterling bonds, despite not having material business activities in the UK.
“Bonds issued by those companies will not be eligible for purchase in the CBPS, because that would not be the most effective way to support the scheme’s objective to impart monetary stimulus to the UK economy.”