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Navigating Central Bank Intervention in Corporate Bond Markets

categories: Factor and Risk Modeling, Performance Analysis, Portfolio Construction and Optimization, Asset Owners, Fixed Income, Asset Pricing and Valuation, Research Paper, SHARP Nicholas, Asset Managers (Quant or Fundamental), SPARKS Andy, general

Since the 2008 financial crisis, major central banks have purchased $9 trillion of bonds in efforts to reinvigorate the global economy. We focus on the impact of the ECB’s Corporate Sector Purchase Program. We find evidence that it has been a significant force in driving euro spreads tighter and stimulating corporate issuance. We examine the impact of the ECB program on a hypothetical credit value strategy investing in euro-denominated corporate debt. The analysis highlights how the portfolio was  re-configured in the face of the ECB’s program, while performance attribution tools show how the strategy would have generated excess returns.

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