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The Bank of England on Thursday said that it is planning to buy asset-backed commercial paper to help improve the function of the private market.
Through its Secured Commercial Paper Facility, the bank will purchase commercial paper securities directly from firms and also from other investors during a defined period each business day.
The BoE said it will purchase, at a minimum spread over risk-free rates, newly issued securities in the primary market via dealers and, after issuance, from other eligible counterparties in the secondary market.
The new measure is part of the central bank's Asset Purchase Programmme that allows the bank to buy bonds up to GBP 150 billion to support the economy. But, the BoE implemented only GBP 125 billion plan so far. A majority of the bonds the central bank bought was government bonds or gilts.
The facility will be available from August 3, although transactions will not take place until this programme is approved as eligible, the central bank said.
The bank said it intends to operate the facility for as long as the highly abnormal conditions in corporate credit markets persist. Moreover, the BoE said it will give a notice period of twelve months if it decides to withdraw the scheme, but there will not be any such notice during an initial period of three months after the facility's launch date. Purchases under the facility may be financed by advances to the bank from the Debt Management Office or, with authorization by the Monetary Policy Committee, by the issuance of central bank reserves.
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