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The real economy effects of QE through the corporate bond market

Author

Listed:
  • Mahmoud Fatouh

    (Bank of England, Prudential Policy Directorate)

  • Simone Giansante

    (dSEAS, University of Palermo, Italy)

  • Meryem Duygun

    (Nottingham University Business School, University of Nottingham, UK)

Abstract

We assess the real economy impact of the Bank of England’s quantitative easing (QE) operations through the corporate bond market between 2009 and 2021. Using difference-in-difference exercises on secondary market yields, and the cost of borrowing and issuance in the primary market, we document increased issuance of investment-grade bonds with long maturity resulting from the lower cost of borrowing caused by QE. Corporates directed additional funds towards share buybacks and reduced bank borrowing rather than increasing real investment. We also isolate the marginal impact of purchases under the Corporate Bond Purchase Scheme (CBPS), the direct effect, from the total effect (arising from all purchases) of QE on the corporate bond market. We find that yields of eligible bonds fell by 40–60 basis points relative to ineligible bonds. However, this fall did not translate into a lower cost of borrowing or higher issuance in the primary market.

Suggested Citation

  • Mahmoud Fatouh & Simone Giansante & Meryem Duygun, 2025. "The real economy effects of QE through the corporate bond market," Bank of England Staff Working Paper series 1134, Bank of England.
    • Handle: RePEc:boe:boeewp:023256
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    References listed on IDEAS

    as
    1. Todorov, Karamfil, 2020. "Quantify the quantitative easing: Impact on bonds and corporate debt issuance," Journal of Financial Economics, Elsevier, vol. 135(2), pages 340-358.
    2. Fatouh, Mahmoud & Markose, Sheri & Giansante, Simone, 2021. "The impact of quantitative easing on UK bank lending: Why banks do not lend to businesses?," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 928-953.
    3. Michael A.S. Joyce & Matthew Tong, 2012. "QE and the Gilt Market: a Disaggregated Analysis," Economic Journal, Royal Economic Society, vol. 122(564), pages 348-384, November.
    4. Michael Joyce & Matthew Tong & Robert Woods, 2011. "The United Kingdom’s quantitative easing policy: design, operation and impact," Bank of England Quarterly Bulletin, Bank of England, vol. 51(3), pages 200-212.
    5. Nick McLaren & Ryan N. Banerjee & David Latto, 2014. "Using Changes in Auction Maturity Sectors to Help Identify the Impact of QE on Gilt Yields," Economic Journal, Royal Economic Society, vol. 0(576), pages 453-479, May.
    6. Buttz, Nick & Churmz, Rohan & McMahon, Michael & Morotzz, Arpad & Schanz, Jochen, "undated". "QE and the Bank Lending Channel in the United Kingdom," Economic Research Papers 270021, University of Warwick - Department of Economics.
    7. Stefania D’Amico & Iryna Kaminska, 2019. "Credit easing versus quantitative easing: evidence from corporate and government bond purchase programs," Bank of England Staff Working Paper series 825, Bank of England.
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    Cited by:

    1. Michael Ellington & Costas Milas & Ryland Thomas, 2026. "Are the effects of quantitative easing and tightening state contingent?," Bank of England Staff Working Paper series 1185, Bank of England.

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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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