Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/306564 
Year of Publication: 
2024
Citation: 
[Journal:] Economics Letters [ISSN:] 1873-7374 [Volume:] 235 [Article No.:] 111563 [Publisher:] Elsevier [Place:] Amsterdam [Year:] 2024
Publisher: 
Elsevier, Amsterdam
Abstract: 
We examine the financial crisis in the European corporate bond market following the COVID-19 pandemic and assess the effectiveness of the ECB's QE program, PEPP, in mitigating it. Using credit (Z-spread) and liquidity (scaled bid-ask spread) spreads, we find that the crisis elevated Z-spreads of corporate bonds and mostly raised the bid-ask spread of ineligible bonds – indicating that the pre-pandemic QE shored up the liquidity of eligible bonds. Moreover, ineligible bonds issued by firms in COVID-19 hard-hit industries experienced the steepest increase in the credit and liquidity spreads. The results show that PEPP decreased the credit spreads of ineligible bonds via the portfolio rebalancing channel, especially in pandemic-sensitive industries; however, it did not improve corporate bonds’ liquidity conditions.
Subjects: 
COVID-19
Liquidity crunch
Quantitative easing
Financial crisis
PEPP
JEL: 
E58
E52
G12
Published Version’s DOI: 
Creative Commons License: 
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Document Type: 
Article
Document Version: 
Accepted Manuscript (Postprint)
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