The European Central Bank formally has begun buying euro-denominated investment-grade bonds issued by companies in the Eurozone.

Up until now, the central bank has been trying to kick start the Eurozone economy by buying cheap long-term loans and sovereign bonds from commercial and investment banks in the hope that those banks would use their increased liquidity to spur lending to consumers and businesses.

The decision to include corporate bonds into the basket of assets the ECB can buy was made in March when Mr Draghi announced a boost to its quantitative easing program from €60 billion in asset purchases each month to €80 billion.

“It remains to be seen how this expansion of the quantitative easing program will pan out but, if the experiences of the Bank of Japan and the Federal Reserve are anything to go by, I think this will eventually turn out to be a mistake,” said Hardeep Sandhu, chief economist at Tokyo-based investment house, Shinsei Corporate Management.

Germany, the largest economy in the Eurozone, has been the QE program’s most vocal critic arguing that it is ultimately highly inflationary and that it has been proven ineffective by Japan and the United States.

Shinsei Corporate Management says that the European Central Bank’s decision will see it become the de facto buyer of last resort in the market for euro-denominated bonds, both sovereign and corporate. “This is not good news for those who want an income from their investments since prices will rise and yields will fall,” concluded Sandhu.

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