The European Central Bank “slowed down considerably” its Eu40bn covered bond purchase programme in response to improved market conditions, said ECB president Mario Draghi yesterday (Wednesday), and is monitoring the appropriateness of CBPP2.

The comments were made during a press conference following a meeting of the Governing Council in Frankfurt, with Draghi asked if the council had discussed the future of the Eu40bn covered bond purchase programme.

ECB president Mario Draghi

The question was posed by a Financial Times journalist, after the newspaper on 22 March reported that an early end to CBPP2 was under consideration. Market participants and external observers have noted that the Eurosystem has been relatively inactive under CBPP2 compared with an average daily run-rate of purchases necessary for it to spend the Eu40bn earmarked for the programme.

Responding to the question, Draghi said:

“About the 40bn covered programmes… You see, what happens here is that after the LTROs market conditions improved considerably. And so demand for these types of bonds went up and so what we are doing now is, and that’s one of the reasons why I actually slowed down the programme considerably already, and that’s one of the reason why we will monitor the programme to judge whether it’s appropriate in the present market conditions. So that’s what basically we’ve done. We’ve slowed down the programme and we are monitoring the… not the feasibility, but I would say the appropriateness of the programme in the present market conditions.”

(See embedded video below or click here to view the relevant part of the press conference – go to 43 mins 08 secs.)

Market participants said that covered bond spreads had not reacted to Draghi’s comments.

(See here for our article on the possible implications of an early end to CBPP2)

Settled covered bond purchases under CBPP2 stand at Eu9.399bn today (Thursday), representing a daily average of Eu91.25m, and a lag of Eu7.997bn on a theoretical daily run-rate of Eu160m.

As reported in The Covered Bond Report earlier this week, at a European Covered Bond Council plenary meeting last Thursday (29 March), Francesco Papadia, ECB director general for market operations, acknowledged that purchases had been at a slower pace than could be inferred from a mechanistic forecast of spending under the programme. But he said that in spite of this, CBPP2 had, alongside other non-standard measures, achieved the ECB’s aims, and noted that the volume of issuance had increased since the programme was announced, while prices had improved, with the “revitalisation” of covered bonds not coming at the expense of the senior unsecured market.

The second purchase programme has “fulfilled its purpose”, he said.

Video requires flash