The second European Central Bank covered bond purchase programme is more focused on the primary market than the first programme was, Wilfried Baum, head of portfolios section at the Deutsche Bundesbank, said at an LBBW conference on Friday while giving insights into CBPP2’s running.

Speaking at the Landesbank Baden-Württemberg European Covered Bond Forum in Mainz, Baum said that there is “much more focus this time on the primary market”.

During the first covered bond purchase programme the ECB released monthly reports giving, among other details, a breakdown between primary and secondary market purchases, but it is not releasing such reports for CBPP2. According to final ECB data on CBPP1, only 27% of purchases under that programme were in the primary market, against 73% in the secondary market.

The ECB on Friday reported total settled purchases under CBPP2 of Eu5.525bn. According to Royal Bank of Scotland analysts, this represents a Eu4.875bn lag on a theoretical run-rate necessary for the ECB to hit its Eu40bn target by the time the programme finishes at the end of October.

Baum noted that issuance of covered bonds eligible for the programme had been very low between the launch of the programme at the start of November and the end of 2011, but had picked up in January. This was matched in January by a jump in reported purchases under CBPP2 and Baum said that the focus on the primary market of the programme “also illustrates the buying activity you observe”.

He said that the focus on the primary market is “to allow for the desired catalysing function in the market”, which was one of the aims of the ECB in launching the second programme.

However, Baum gave little colour on how the ECB might – if at all – be weighting purchases towards peripheral countries, but did say that “we try to be as fair as possible”. He said that factors that could influence the operation could be “where the need might be big” and at the same time “where the risk is within our considerations”, with the “economic importance” of countries and size of covered bond markets coming into play.

Baum had earlier noted that the “similarities are not very big” between CBPP2 and the Securities Markets Programme.

Giving an insight into the practical operation of the programme, Baum said that when they are launching a new issue, issuers and lead managers can inform the national central bank (NCB) in the country of issue, and that this NCB will inform other Eurosystem members. The Eurosystem will then hold a conference call to agree how much interest there is, subject to system limits, and will enter a bid for the new issue or tap with the institution that first approached them. However, he noted that although they had been approached about new issues ahead of bookbuilding, Eurosystem members will only place orders once books are open.

Baum said that in the secondary market the Bundesbank’s approach is to accept on a daily basis via e-mail lists where partners can offer excess paper. The Bundesbank will then decide where there is a need to purchase paper, and then engage in a process whereby it will ask for prices from a range of counterparties before buying.