The Covered Bond Report

News, analysis, data

CBPP2 deadline day, Helaba nips in just in time

The ECB’s second covered bond purchase programme is set to end today (Wednesday), based on a maximum one year lifespan it was assigned when launched last November, with participation in a Helaba transaction yesterday likely the Eurosystem’s last primary market foray under the scheme.

When CBPP2 was announced last October, the central bank said that the Eurosystem could spend up to Eu40bn under the programme, which was expected to be “fully implemented by the end of October 2012 at the latest”.

Based on covered bond purchases that had settled by yesterday (Tuesday), the Eurosystem has spent Eu16.386m of the Eu40bn earmarked for the scheme. Settled purchases increased by Eu9m overnight, one of only a few rises reported since the start of this month. [UPDATED] The ECB today said that a nominal amount of Eu16.418bn of covered bonds were purchased on the primary and secondary markets between November 2011 and the end of the scheme. [UPDATE ends]

The Eu9m overnight increase could capture any buying of a Eu500m Bankinter cédulas hipotecarias issue, which settled yesterday. Central banks bought 2% of the transaction, equal to Eu10m, although this does not necessarily (only) capture CBPP2 activity.

The only CBPP2-eligible new issue since Bankinter’s deal was a Eu500m five year mortgage Pfandbrief for Landesbank Hessen-Thüringen that was priced yesterday, with the Eurosystem participating under CBPP2, according to lead syndicate bankers.

ECBOne said that the knowledge that there was still an opportunity to benefit from the programme influenced the timing of the deal, although another played down the importance of CBPP2 participation for the deal’s success.

More than Eu1bn of orders were placed for the Eu500m no-grow transaction. Central banks were allocated 12% of the deal, equivalent to Eu60m.

Based on the figure for settled purchases reported daily by the ECB, CBPP2 has lain more or less dormant for around three weeks, with total reported spending only increasing by Eu52m since 9 October, spread out over seven reporting days. The biggest increase in that period was Eu11m, disclosed on 19 October and capturing additional purchases settling the day before.

That the Eu40bn assigned to the scheme would not be fully spent by the end of its term has been fairly evident for some time given the slow pace of buying under it, in part given a lack of supply, with market participants having previously noted that the programme was rendered somewhat obsolete by other measures taken by the ECB, notably its two longer term refinancing operations (LTROs). (See here for previous coverage.)

Full disbursement of the Eu40bn would have amounted to an average weekly purchase volume of Eu769m and a theoretical daily run rate of Eu160m, according to RBS analysts. Today the average daily spend stands at Eu65.81m, with the gap between the daily run rate and actual buying volume standing at Eu24.414bn.