The European Central Bank announced a new covered bond purchase programme (CBPP) to be launched alongside a first ABS purchase programme in October this (Thursday) afternoon – the latter move having been anticipated, although covered bonds had not been in focus.

Preparations for an ABS purchase programme were revealed on 5 June as part of a package of measures including targeted longer-term refinancing operations (TLTROs) and reductions in headline policy rates. Covered bonds were, however, not discussed by the ECB in the context of a new purchase programme.

The ECB has launched two previous covered bond purchase programmes. The latest (CBPP2) ran from November 2011 until October 2012, with the central bank dramatically undershooting the programme’s potential Eu40bn as only Eu16bn of covered bonds were purchased. The first covered bond purchase programme (CBPP1) ran from July 2009 to June 2010 and the full Eu60bn earmarked was spent.

CBPP1 was credited with helping the recovery of the asset class after the post-Lehman financial crisis, while the underspend on CBPP2 was considered understandable in a context of lower needs.

As rumours of a CBPP3 emerged this morning, a covered bond analyst said that a new programme would make limited sense in light of how CBPP2 developed and the high negative net supply the market already faces.

Few details of CBPP3 have been announced, but more are expected after the next ECB governing council meeting, on 2 October.