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Demand-Driven Bond Financing in the Euro Area

Published online by Cambridge University Press:  24 January 2025

Stefano Pegoraro Open the ORCID record for Stefano Pegoraro [Opens in a new window]  and
Mattia Montagna
Stefano Pegoraro*
Affiliation:
University of Notre Dame Mendoza College of Business
Mattia Montagna
Affiliation:
Quantum Bridge Technologies Inc. mattia.montagna@qubridge.io
*
s.pegoraro@nd.edu (corresponding author)
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Abstract

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We show non-financial corporations changed the quantity and composition of their bond issues in response to the European Central Bank’s corporate quantitative easing program. Eligible issuers shifted toward bonds meeting the program’s eligibility requirements. Moreover, demand for credit risk increased, and risk premia in the bond market dropped after the announcement. Eligible and ineligible firms increased total issuance and shifted toward bonds with riskier characteristics, namely unsecured and non-guaranteed bonds. Total issuance increased the most among those firms that were most exposed to the decline in risk premia. Firms also shifted away from short-maturity instruments and issued more fixed-coupon bonds.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 60 , Issue 6 , September 2025 , pp. 2847 - 2878
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We are grateful to an anonymous referee, Patrick Augustin, Alexander Borisov, Chuck Boyer, Lorenzo Cappiello, Huaizhi Chen, Mengqian Chen, Dong Beom Choi, Zhi Da, Olivier Darmouni, Douglas Diamond, Mengqiao Du, John Duca, Ran Duchin (the editor), Isarin Durongkadej, José Faias, John Fell, Paul Gao, Ben Golez, Lars Peter Hansen, Zhiguo He, Xiaolu Hu, Diana Iercosan, Bryan Kelly, Sophia Kazinnik, Randy Kroszner, Jian Li, Tim Loughran, Yueran Ma, Melina Papoutsi, Lubos Pastor, Loriana Pelizzon, Raghuram Rajan, Meredith Rhodes, Davud Rostam-Afschar, Carmelo Salleo, Sophie Shive, Amir Sufi, Karamfil Todorov, Harald Uhlig, Quentin Vandeweyer, Jonathan Wallen, Jaejoon Woo, Pietro Veronesi, Steve Wu, Ram Yamarthy, Jun Yang, Andrea Zaghini, Rafael Zambrana, Michal Zator, and Eric Zwick. We also thank participants at the 2016–2017 Third-Year Seminar at UChicago, ECB, Booth, Notre Dame, Western Finance Association, Midwest Finance Association, Northern Finance Association, SGF, IBEFA, Financial Management Association, FMCGC, French Finance Association, International Association for Applied Econometrics, Western Economic Association, EFMA, WFC, WFBS, GFC, APAD, RCEA, ERMAS, SFA, IIPF, FMA Europe. Isabella DiSanti, James Ng, Veronica Song, and Ruby Zhang provided excellent research assistance. The views expressed are those of the authors and do not necessarily reflect those of the European Central Bank. Earlier versions of this paper circulated under the titles “The Transmission of Quantitative Easing to Corporate Bond Prices and Issuance” and “Issuance and Valuation of Corporate Bonds with Quantitative Easing.”

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