The Impact of the Bank of England's Corporate Bond Purchase Scheme on Yield Spreads

As part of its August 2016 policy package, the Bank of England announced a scheme to purchase up to £10 billion of corporate bonds. Only sterling investment-grade bonds issued by firms making a ‘material’ contribution to the UK economy were eligible to be purchased. So eligible bonds constitute a natural treatment group to estimate the announcement effect of the policy in a difference-in-differences approach. Our results suggest that the scheme reduced spreads of eligible bonds by 13–14 basis points compared to foreign bonds issued by the same set of firms, and by 2–5 basis points compared to ineligible sterling corporate bonds. But because of spillover effects, these estimates should be interpreted as a lower bound.