Bank of England confirms details of corporate bond buying scheme

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Apple, Vodafone and Transport for London are among eligible issuers in the Bank of England’s corporate bond buying scheme, as the bank confirms it will begin the programme on 27 September.

Bonds with a face value of £110bn are eligible at present.

Corporate bonds issued by company’s the Bank regulates – including banks, building societies and insurance companies – will not be eligible.

It will buy over an initial period of 18 months.

Bonds must be investment grade and issued by firms making a “material contribution to the UK economy”, but they do not need to be UK headquartered if they generate significant revenues, service a large number of customers or have a number of operating sites within the UK.

French industrial giant Bouygues and German automaker Daimler are among the foreign companies the Bank of England included in a list of eligible issuers.

“A company headquartered outside of the UK but employing hundreds of people in the UK and generating sales of £20m in the UK would be considered to make a material contribution to the UK economy,” the Bank said in its announcement.

The programme, officially known as the Corporate Bond Purchase Scheme (CBPS), was announced at the Bank’s August meeting alongside an interest rate cut to 0.25 per cent and the introduction of the term funding scheme.

The Bank reiterated that its purpose is to lower yields and reduce the cost of borrowing, stimulate the issuing on bonds, and triggering portfolio rebalancing into other assets by sellers of assets.

The Bank intends to establish a portfolio representative of total eligible bonds by sectors, but said there may be some early deviation as it builds up its portfolio.

This will see electricity, which accounts for 25 per cent of eligible bond issuances, the largest sector in the Bank’s purchases. This is followed by consumer non-cyclicals (which account for15 per cent) and industrial and transport (14 per cent).