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Document Type

Case Studies

Abstract

In late 2008, at the height of the Global Financial Crisis, increased liquidity premia and risk aversion in the secondary market hindered companies’ ability to issue corporate bonds. In response, in January 2009, Her Majesty’s Treasury authorized the Bank of England to establish a facility to purchase commercial bonds through the Asset Purchase Facility. In March 2009, the Bank of England published details on the Corporate Bond Secondary Market Scheme, in conjunction with its quantitative easing program. Under the scheme, the Bank acted as a market maker of last resort in the secondary bond market, making regular purchases of a wide range of high quality, sterling-denominated corporate bonds. In doing so, the Bank hoped to improve the functioning of the secondary market, thereby removing barriers to credit for UK companies. The purchase program was augmented in 2010, when the Bank began to sell corporate bonds through similar frequent auctions. Purchases through the scheme peaked in the second quarter of 2010, at £1.6 billion. Citing improved liquidity in the secondary market and the related decline in usage of the scheme, the Bank began phasing out the Corporate Bond Secondary Market Scheme in 2013, and it was officially closed in August 2016.

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