By Josie Cox
European stocks jumped on Tuesday and the euro sank on news the
European Central Bank is considering buying corporate bonds--a move
that would beef up its program aimed at stimulating the continent's
sickly economy.
No specific plan had been discussed, one person familiar with
the matter said, and there is no timetable yet for when such a step
may be considered. Earlier, Reuters reported that the central bank
may decide on the matter as early as December and could begin
buying early in 2015.
"If reports are true, then the ECB is moving even closer to
outright quantitative easing," currency strategists at U.S. bank
Brown Brothers Harriman wrote in a note.
BNP Paribas strategists, meanwhile, said that they deemed it
likely the ECB would go ahead with such a program, "given that the
measures already announced by the ECB to reach balance sheet levels
of 2012 will likely fall short."
The ECB hasn't set a hard target for the amount of assets it
intends to purchase, but President Mario Draghi has said that the
central bank is seeking to expand its balance sheet toward levels
last seen in early 2012, suggesting the combined scheme--including
a new bank-lending program--could be worth at least EUR700 billion
($894 billion).
The euro fell to trade around 0.3% lower against the dollar, at
$1.2750 by midday, marking the day's low. It was trading around
0.2% lower against sterling. The Stoxx Europe 600 was trading 1.5%
higher by late morning, extending tentative gains from earlier in
the day. German and French stocks climbed by a similar degree,
while Italy's FTSE MIB index climbed by 2.3% and Spanish stocks
rose by 1.9%.
The iTraxx Main index, which reflects investors' confidence
levels in debt issued by a large number of corporate bonds in
Europe, was trading around 0.05 percentage point tighter on the
day, the biggest boost in sentiment since the October ECB
meeting.
"As a rough guide, they could purchase around EUR50 billion over
a one-year period under current market conditions, and perhaps as
high as EUR100 billion if purchases improve market conditions,"
said J.P. Morgan in a note to clients.
Stefan Isaacs, a corporate-bond fund manager at M&G
Investments wasn't surprised by the news. "They've alluded to
buying corporate bonds before. I struggle to see that it will make
a huge difference given how low corporate funding costs are
already," he said, describing it as "another dodging tactic ahead
of ultimately buying sovereign bonds."
"This just reinforces the notion that [sovereign QE] is
politically challenging to do, and they will explore all other
avenues before then," Mr. Isaacs added.
The news comes just a day after the ECB said it had started
buying covered bonds, which are backed by a pool of loans such as
residential mortgages, and are widely considered as the safest type
of debt that banks sell.
-- Brian Blackstone and Ben Edwards contributed to this
article
Write to Josie Cox at josie.cox@wsj.com