The Impact of the PEPP on the Corporate Commercial Paper Market

The Covid-19 crisis triggered a “dash for cash” phenomenon that revealed vulnerabilities on short-term debt markets. To foster monetary policy transmission and indirectly to ensure firms’ short-term financing needs, the Eurosystem effectively bought for the first time corporate commercial paper (CP) market in March 2020, as part of the Pandemic Emergency Purchase Programme (PEPP).Using a difference-in-differences approach that exploits the PEPP eligibility criteria, our findings suggest that the program triggered a shift in the debt composition of eligible firms. Maturity at issuance increased on average by 42 days for eligible issuers, which contributed to a reduction in rollover risk. This asset purchase program was effective in easing financing conditions, which translated into a compression of yields between 8 and 11 basis points for eligible firms. Eligible issuances increased but we do not find that the PEPP fostered issuance at the aggregate level. For issuers whose debt was mainly held by money market funds prior to the crisis, we found that the effect on maturity is more contained, indicating that firms’ investor sector matters.