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September 14, 2016updated 20 Sep 2016 3:53pm

Bank of England adds Apple and IBM to bond-buying scheme

The scheme will be financed in the same way as quantitative easing.

By Alexander Sword

The Bank of England (BoE) may buy Apple and IBM’s corporate bonds as part of a new economic stimulus programme.

The tech companies were included on a list of over 100 companies who are eligible to have their corporate bonds bought by the UK’s central bank under the new scheme, called the Corporate Bond Purchase Scheme (CBPS).

Under the CBPS, which will commence on 27 September 2016, the BoE plans to purchase a portfolio of up to £10bn of sterling investment grade bonds.

Other tech and telecoms companies on the list include EE, Deutsche Telekom, IBM, Verizon and Vodafone. Outside the tech sector, companies such as McDonalds and Toyota feature on the list.

Some of these companies may already have large piles of cash. Apple is currently holding large amounts of cash, with its cash pile at $231.5 billion in the fiscal third quarter, down $1.4 billion from the previous quarter.

To qualify for the scheme, companies must make a “material contribution” to the economy.

The purpose behind the scheme is to “impart monetary stimulus”, according to the BoE.

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The programme will do this in three major ways, according to the BoE: “lowering the yields on corporate bonds, thereby reducing the cost of borrowing for companies; by triggering portfolio rebalancing into riskier assets by sellers of assets; and by stimulating new issuance of corporate bonds.”

As well as giving the eligible companies funds to splash on growth, buying large number of bonds drives up the cost of these fairly safe bonds, lowering the yield or return on these bonds.

The declining yields mean that investors may look for higher yield bonds, perhaps by lending to more high-growth, riskier companies.

The scheme will effectively be funded in the same way as quantitative easing: the programme is carried out by the Asset Purchase Facility, which is funded by borrowing from BoE reserves.

This is an expansion of the programme from the government bonds (gilts) purchased in quantitative easing to corporate bonds.

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