ECB ponders buying ‘junk’ corporate bonds


The European Central Bank has asked staff to study whether it should buy “junk” corporate bonds as it comes under growing pressure to help the economy cope with the fallout from the coronavirus pandemic, four sources told Reuters.

Adding company debt recently downgraded to speculative grade to the central bank’s 1.1 trillion-euro shopping list for this year would help the ECB bring down borrowing costs for companies that have been hit hardest by the health crisis.

But it would also lead to the risk of recording losses on those purchases if the companies eventually go bust, opening up the ECB to even more criticism at a time it is already under scrutiny in Germany for buying government bonds.

The ECB is already accepting corporate bonds that have been downgraded by ratings agencies to speculative grade since April 7 as collateral, giving it a template for how the purchases might work.

It is also buying junk-rated Greek government bonds, which could serve as a precedent, the sources said.