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

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  • Lo Duca, Marco
  • Nicoletti, Giulio
  • Vidal Martínez, Ariadna

Abstract

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.

Suggested Citation

  • Lo Duca, Marco & Nicoletti, Giulio & Vidal Martínez, Ariadna, 2016. "Global corporate bond issuance: What role for US quantitative easing?," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 114-150.
  • Handle: RePEc:eee:jimfin:v:60:y:2016:i:c:p:114-150
    DOI: 10.1016/j.jimonfin.2015.07.013
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    Cited by:

    1. Wensheng Kang & Ronald A. Ratti & Joaquin L. Vespignani, 2016. "The implications of liquidity expansion in China for the US dollar," CAMA Working Papers 2016-05, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. Soha Ismail & Juan Jose Cortina Lorente & Sergio L. Schmukler, 2017. "Capital Raising in the Arab World," Working Papers 1095, Economic Research Forum, revised 05 2017.
    3. repec:eee:inecon:v:112:y:2018:i:c:p:50-69 is not listed on IDEAS
    4. Ayala, Diana & Nedeljkovic, Milan & Saborowski, Christian, 2017. "What slice of the pie? The corporate bond market boom in emerging economies," Journal of Financial Stability, Elsevier, vol. 30(C), pages 16-35.
    5. Cortina, Juan J. & Ismail, Soha & Schmukler, Sergio L., 2018. "Firm financing and growth in the Arab region," Economic Systems, Elsevier, vol. 42(2), pages 361-383.
    6. Boumparis, Periklis & Milas, Costas & Panagiotidis, Theodore, 2017. "Economic policy uncertainty and sovereign credit rating decisions: Panel quantile evidence for the Eurozone," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 39-71.
    7. R.J. Galema & S. Lugo, 2017. "When central banks buy corporate bonds: : Target selection and impact of the European Corporate Sector Purchase Program," Working Papers 17-16, Utrecht School of Economics.
    8. Stépahne Lhuissier & Urszula Szczerbowicz, 2018. "Monetary Policy and Corporate Debt Structure," Working papers 697, Banque de France.
    9. Ramon Moreno & José María Serena Garralda, 2018. "Firms' credit risk and the onshore transmission of the global financial cycle," BIS Working Papers 712, Bank for International Settlements.
    10. Dunne, Peter & Everett, Mary & Stuart, Rebecca, 2015. "The Expanded Asset Purchase Programme – What, Why and How of Euro Area QE," Quarterly Bulletin Articles, Central Bank of Ireland, pages 61-71, July.
    11. Cortina Lorente,Juan Jose & Didier Brandao,Tatiana & Schmukler,Sergio L. & Cortina Lorente,Juan Jose & Didier Brandao,Tatiana & Schmukler,Sergio L., 2016. "Corporate borrowing and debt maturity : the effects of market access and crises," Policy Research Working Paper Series 7815, The World Bank.
    12. Anaya, Pablo & Hachula, Michael & Offermanns, Christian J., 2017. "Spillovers of U.S. unconventional monetary policy to emerging markets: The role of capital flows," Journal of International Money and Finance, Elsevier, vol. 73(PB), pages 275-295.
    13. Zaghini, Andrea, 2019. "The CSPP at work: Yield heterogeneity and the portfolio rebalancing channel," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 282-297.
    14. Temesvary, Judit & Ongena, Steven & Owen, Ann L., 2018. "A global lending channel unplugged? Does U.S. monetary policy affect cross-border and affiliate lending by global U.S. banks?," Journal of International Economics, Elsevier, vol. 112(C), pages 50-69.
    15. Snehal S Herwadkar, 2017. "Corporate leverage in EMEs: did the global financial crisis change the determinants?," BIS Working Papers 681, Bank for International Settlements.
    16. MacDonald, Margaux, 2017. "International capital market frictions and spillovers from quantitative easing," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 135-156.
    17. Jhuvesh Sobrun & Philip Turner, 2015. "Bond markets and monetary policy dilemmas for the emerging markets," BIS Working Papers 508, Bank for International Settlements.
    18. Kang, Wensheng & Ratti, Ronald A. & Vespignani, Joaquin L., 2016. "The implications of monetary expansion in China for the US dollar," Journal of Asian Economics, Elsevier, vol. 46(C), pages 71-84.
    19. Georgiadis, Georgios & Mehl, Arnaud, 2016. "Financial globalisation and monetary policy effectiveness," Journal of International Economics, Elsevier, vol. 103(C), pages 200-212.
    20. repec:eee:intfin:v:52:y:2018:i:c:p:211-226 is not listed on IDEAS
    21. Alberto Fuertes & José María Serena, 2016. "How firms borrow in international bond markets: securities regulation and market segmentation," Working Papers 1603, Banco de España;Working Papers Homepage.
    22. Georgiadis, Georgios & Mehl, Arnaud, 2015. "Trilemma, not dilemma: financial globalisation and Monetary policy effectiveness," Globalization Institute Working Papers 222, Federal Reserve Bank of Dallas.

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    Keywords

    Monetary policy; Quantitative easing; Spill-overs; Bond issuance; Federal Reserve; Emerging markets;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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