Quantitative Easing, Investment, and Safe Assets: The Corporate Bond–Lending Channel

Abstract

We show that Quantitative Easing (QE) stimulates investment via a corporate bond–lending channel. Fed's large-scale purchases of mortgage-backed securities (MBS) and treasuries create a vacuum of safe assets, prompting safer firms to invest by issuing relatively “safe” bonds. Using microdata around different QE rounds, our robust results suggest that QE increases the investment of firms with bond market access. The effect is larger for safer firms. This growth is financed with senior bonds, without higher shareholders' payouts. Results hold excluding the financial crisis period. The findings support a stylized model where lower supply of treasuries reduces “safe” corporate bond yields, stimulating investment.