An ECB official has acknowledged the inevitable impact on the market of its third covered bond purchase programme, but said that it had received feedback suggesting the primary market is OK and that it will act wisely in managing the programme’s end.

Ad Visser, head of the financial markets and collateral section in the European Central Bank’s market operations analysis division, was speaking at a European Covered Bond Council plenary in Amsterdam this (Thursday) morning.

Presenting an overview of the ECB’s expanded asset purchase programme – with the addition of its public sector purchase programme (PSPP) to CBPP3 and its asset-backed securities purchase programme (ABSPP) – Visser said that although oversubscription levels had varied since the programme started and been lower on some recent issuance, the ECB’s overall impression – also taking into account feedback from market participants – was that primary issuance goes “reasonably well”.

“And the ECB, of course, takes part in the issuances,” he said, “so we buy some of the bonds that others don’t want to buy. But the feedback that we get is that the absorption of our purchases in the primary market is going reasonably OK – at least that’s the kind of feedback that we get also from the issuers or the parties involved in the issuances.”

However, Ralf Grossmann, head of covered bond origination at Société Générale, argued in a follow-up panel that – unlike CBPP1 and CBPP2 – the cons of CBPP3 outweigh the pros. He said that while spreads have tightened, execution risk has not disappeared and the main concern is that investors are leaving the market.

Thomas Cohrs, head of syndicate and origination at NordLB, questioned Visser on CBPP3 putting institutional investors off the covered bond market. He argued that the programme is distorting the market and thereby having a negative impact.

“I did not say that we are not distorting at all,” responded Visser. “I said that we try to minimise it as much as possible.”

But he acknowledged that there are inevitable consequences if there is “a big buyer in town”.

Visser said the ECB is aware of the magnitude of its purchases relative to outstandings and, asked about the potentially negative impact on the market of the ECB withdrawing when CBPP3 ends, he said that the governing council will form a “wise decision” on how to end it when the time comes.

Grossmann also said that he is less pessimistic about the fate of the covered bond market when CBPP3 comes to an end, saying that he believes investors will return as they see covered bonds as the only bank instrument that is not bail-in-able and with a natural place in their portfolios.

“So on a medium term basis I’m not too concerned about it,” he said.