The ECB announced a Eu3.829bn increase in settled covered bond purchases under CBPP3 this (Monday) afternoon, defying expectations the programme would slow as primary activity eases into year-end, with secondary or other buying more than taking up the slack.

The European Central Bank surprised market participants by announcing settled purchases had reached Eu24.756bn as of Friday, up from Eu20.927bn the previous Friday.

Released each Monday, the weekly totals include only purchases settled in the previous week. With the year-end slowdown market kicking in and only one CBPP3-eligible issue having settled last week – a Eu1bn long seven year Cariparma deal, of which the Eurosystem bought Eu350m – it had been expected that today’s figure would be lower than the Eu3.126bn increase reported in the previous update, which covered the settlement of two new issues albeit modest ones.

This suggests the ECB further scaled up its activity in the secondary market, on which most CBPP3 purchases have been made. A recently released breakdown of cumulative purchases under CBPP3 revealed that to the end of November, Eu13.488bn (75.77%) had been done on the secondary market, with Eu4.312bn (24.23%) in primary.

Taking into account the Eurosystem’s Eu350m share of the Cariparma issue, Joost Beaumont, senior fixed income strategist at ABN Amro, calculated that the ECB bought on average Eu696m per day in the secondary market, which he said is a record high.

Barclays analysts suggested that the pick-up in secondary activity could have come on the back of investors taking profits, particularly in peripheral markets.

“CBPP3 activity benefitted from this temporary supply overhang in the secondary market,” they said.

However, ABN Amro’s Beaumont noted that any impact on spreads was muted, with spreads having roughly stabilised in the past week.

“Looking forward, we expect spreads to start tightening again, especially if the ECB keeps up buying at the current pace,” he added.

Stephen Dorner, covered bond analyst at Crédit Agricole, suggested that the unexpected increase in CBPP3 activity could also be partly explained by private placements, taps or smaller publicly placed deals without distribution stats, he added.

“We wouldn’t completely rule out that the ECB finally started with retained and private placement purchases,” he said.

Dorner added that it is still likely purchasing volumes will fall over the next two weeks, with no primary activity expected and more investors closing their books.

“Though, from what we can see at the moment, the ECB can still maintain their purchases in secondaries at a relatively good pace,” he said.