(Bloomberg) -- The European Central Bank will have plenty of newer notes to consider if it returns to the corporate-bond market as part of stimulus measures.
Companies have issued about 108 billion euros ($121 billion) of ECB-eligible bonds this year -- outweighing some 55 billion euros of maturities -- spurred by low borrowing costs and the return of U.S. issuers. That has kept the overall ECB-eligible universe at just over 1 trillion euros, based on data compiled by Bloomberg. Generally, the ECB only buys investment-grade euro bonds issued by companies other than banks.
Still, the central bank already holds 177.7 billion euros of the eligible universe, a level little changed since the end of net asset purchase last year due to the reinvestment of maturing holdings. The bank also limits purchases to no more than 70% per note. Its buying ability may be further curbed by bondholders’ reluctance to sell, given the shortage of alternative investments available amid $13.4 trillion of negative-yielding bonds worldwide.
The ECB may buy 3.5 billion euros to 4.8 billion euros of corporate bonds each month, corresponding to 50% to 67% of net supply, if it resumes net purchases, according to a BNP Paribas (PA:BNPP) SA estimate. Central bank President Mario Draghi sparked expectations for a possible resumption when he said in a speech last month in Sintra, Portugal that additional stimulus will be needed absent an improved outlook for growth and inflation.
This year, the bank has only bought into 29 of 161 new eligible notes. The notes it has bought into have an outstanding amount of 21 billion euros, just about 20% of the overall amount of eligible securities issued.
German and French borrowers issued most of the new eligible notes this year, with a combined 66 billion euros of sales. U.S. borrowers sold 16 billion euros. The ECB can buy notes from non euro-zone companies provided they are issued via a local entity. For instance, notes sold last month by Illinois-based tractor maker Deere & Co. are eligible for purchase because they came from a Luxembourg unit.
About half of new ECB-eligible bonds sold this year were issued by cyclical or non-cyclical consumer names. Automakers and their suppliers led the cyclical sector, including bonds from Volkswagen (DE:VOWG_p) AG and Schaeffler AG. Non-cyclical sales were boosted by reverse Yankee issuers such as Becton Dickinson & Co. and Medtronic (NYSE:MDT) Plc.
In terms of maturity, new eligible notes this year range to as long as 30 years. The ECB buys corporate bonds with maturities stretching from six months to 31 years