THIS month, the European Central Bank launches its latest bid to stimulate the eurozone economy and lift inflation by buying corporate bonds. The project, announced in March, is the latest escalation of the aggressive monetary policy easing from central banks worldwide since the 2008 financial crisis.

The ECB will buy euro-denominated investment grade bonds from companies incorporated within the eurozone. Only bonds with a maturity of more than six months and up to 30 years will be considered.

Any company incorporated in the eurozone will be eligible, even if it has an ultimate parent based elsewhere. Given that the eurozone-based company requires an investment grade ranking in its own right to qualify, bankers say it will not be economical for US companies to set up entities in the eurozone to take advantage of the plan.

Banks are excluded, but car companies — whose financial arms have banking licences — are included. You are only excluded if the parent company of the debt issuer is a bank. Bonds of insurance companies are also candidates.

All bonds have to meet the ECB’s collateral eligibility framework, under which the debt will be judged investment grade as long as they have that rating from one agency. The ECB has said it will strive to be ‘market neutral’ in its purchases. Negative-yielding bonds will be included so long as the yield is above the central bank’s overnight deposit rate of minus 0.4pc.

The ECB will buy in both the primary and secondary markets. Primary markets is the term used to refer to the buying of new bonds, secondary markets for those already issued.

Purchases will be made by six of the national central banks — Belgium, Germany, Spain, Finland, France and Italy — each covering a different part of the eurozone. Large banks have sales people responsible for covering each of the central banks, and are hammering out the details of how the process will work.

In the secondary market, investment banks act as dealers, buying and selling bonds to earn a commission. In primary markets, they underwrite new bond issues and allocate them to investors on behalf of a company. There are strict regulatory guidelines for how the allocation works but ultimately it must be signed off by the company selling the debt.

Syndicate bankers, who manage these debt issues, suggest that some companies may prefer to give some bonds to the ECB while others will want to make sure existing investors are kept happy.

So far there has been no indication of how much the ECB intends to buy or that there will be a target amount.

Analysts say it is likely the ECB will start with just a few bonds and gradually increase asset purchases to between 5-10bn euros per month. At the March meeting of the ECB’s governing council, Mario Draghi, the president, announced an increase in the size of asset purchases under the quantitative easing programme from 60bn to 80bn euros. However, it is extremely unlikely that all of this increase will come from corporate bond markets.

Indeed, market participants suggest the ECB may struggle to complete purchases of 10bn euros per month given the volume of new corporate bonds sold and existing bonds traded. A figure of 5bn euros may be more manageable, they say.

Every week, the central bank will publish the amount of corporate bonds it holds, while it will provide a breakdown of all purchases each month. The ECB has given itself the option of buying up to 70pc of any individual bond issue, while there is no minimum.

No one knows with certainty, but there are plenty of predictions.

The ECB’s intention is to stimulate the eurozone by directly financing companies. The immediate impact of the policy’s announcement was to send bond yields even lower and many big companies launched new debt offerings to take advantage of cheaper borrowing costs.

However, only large European companies typically access the bond markets and they are generally not struggling to access financing — credit was cheap before the policy was announced.

The question for the ECB is whether it helps lower financing costs for smaller companies. This could happen via the banks, as investors shift into bank bonds which offer relatively more value, or if smaller companies are persuaded to tap the bond markets themselves. Analysts at Goldman Sachs suggest small and mid-caps benefit disproportionately from falling borrowing costs.

It may also tempt larger European companies to take on more cheap debt to fund M&A or share buybacks. One worry for investors is that the scheme will suck up all the liquidity in the market, hampering their ability to trade in the secondary market.

Published in Dawn, Business & Finance weekly, June 6th, 2016