BofA: “45% Of The Global Bond Market Is Now Compromised By Central Bank Buying”
by Tyler Durden
Aug 6, 2016 9:33 AM
ZERO HEDGE
The market’s attention this week was focused on the Bank of England’s decision to purchase £10 billion in corporate bonds over the next 18 months. By doing so Mark Carney, like Draghi, has opened up a Pandora’s box, since ultimately corporate debt is nothing more than post-petition equity, and all it would take to make the BOE (or ECB) an activist stakeholder in an legal process is for the obligor to go bankrupt. Consider the following scenarios.
1. The Bank of England purchases a corporate bond of XYZ British Corporation and 2 years later, the company goes bankrupt. What will the BoE do? Will it sit in the bankruptcy table and negotiate with other creditors? Does it even have the legal authority to do so? Essentially they are gambling with the taxpayer’s money.
2. If a large foreign company wants to take over a British corporation and the BoE happens to own their debt, how will the act? Can they sell the debt into a market that is already pricing a corporate event? Will the act as an activist investor, lobbying for one outcome?
3. What possible connection is there between economic growth and corporate purchases?
And while we can’t wait to see Draghi or Carney spearheading an unsecured creditor committee (while the SNB is engaged in a valuation fight as the head of the equity committee), it is point 3 is most worrisome. No matter who the talking head with a PhD is or what they are trying to dissuade you, there is no guarantee that simply buying bonds (especially corporate debt) will lead to controlled inflation or unemployment? If, for one moment, purchasing debt was the solution to our troubles, shouldn’t asset managers (hedge funds, mutual funds, pension funds, insurance companies) be the economy’s best friend? If all Britain needed post-Brexit was an additional £10 billion, why not have the private sector raise that money and corner the market? At least they would be risking private and not public capital?
Central banks are taking us to a place with no precedent, which is becoming more dangerous by the day: not a single “expert” dares to refute any more that the only reason the S&P500 is at record high is because global central bank QE has hit a record $180 billion per month.

http://www.zerohedge.com/news/2016-08-06/bofa-45-global-bond-market-now-%E2%80%9Ccompromised%E2%80%9D-central-bank-buying