Upturn for corporate credit

City A.M. Reporter
BRITISH corporate credit conditions improved in the second quarter of the year, partly as a result of asset purchases by the Bank of England (BoE), the central bank said yesterday.<br /><br />Market contacts reported improved liquidity and price transparency for corporate bonds, and short-dated commercial paper issuance declined because firms were able to find longer-term finance, the BoE said.<br /><br />The BoE said in its quarterly report on its Asset Purchase Facility: &ldquo;The continued purchases of assets by the facility during the second quarter of 2009 were accompanied by signs that conditions in corporate credit markets were improving,&rdquo; <br /><br />The report did not discuss the future of the asset purchase programme, which since March has been funded by &pound;125bn of newly created money in a policy of quantitative easing aimed at lifting spending.<br /><br />Most of the asset purchases have been focused on British government debt, and the BoE has said its last gilt purchase will take place on Wednesday unless it decides to expand the &pound;125bn total in future.<br /><br />Purchases of commercial paper and corporate bonds, which have been much smaller in scale and aimed at improving market liquidity, could continue with finance from treasury bill issuance rather than quantitative easing money.<br /><br />The BoE said a rise in gilt yields between April and June was related to expectations of higher official interest rates in the future and faster growth or inflation, rather than credit or illiquidity risk. The spreads at which corporate bonds traded over gilts had also narrowed during the period, driven by improved liquidity as well as lower market perceptions of credit risk, the BoE said.