CBPP3 outstandings increased Eu2.47bn in the week to last Friday, according to figures published yesterday (Monday) afternoon, while analysts expect the pace of covered bond buying to gradually ease with the final terms of an imminent ECB sovereign QE programme expected to be revealed on Thursday.

Monday’s ECB figure takes the total volume of settled and outstanding purchases under the third covered bond purchase programme past the Eu50bn mark for the first time, up from Eu48.739bn at the end of the previous reporting period to Eu51.208bn.

Two CBPP3-eligible primary market deals settled last week, a UniCredit Bank Austria Eu500m 10 year and a Eu500m five year from Société Générale SFH.

Florian Eichert, senior covered bond analyst at Crédit Agricole, estimated that the Eurosystem bought Eu183m of these deals, with the remaining Eu2.287bn being bought on the secondary market. This would mean average daily secondary purchases under CBPP3 totalled Eu457m per day in the latest weekly period, Eichert estimated, down from Eu486m the previous week.

“For the time being it still seems that the ECB finds sufficient volumes to cover their secondary market target,” he said. “The lower overall figure is more of a reflection of the lower primary market settlements.”

Monthly ECB figures released yesterday also reveal that total outstanding primary market settlements under CBPP3 up to Friday stood at Eu9.678bn, or 18.9% of cumulative CBPP3 holdings, while the outstanding secondary total was Eu41.531bn, or 81.1%. The previous month’s figures had shown that as of the end of January Eu8.063bn (20.03%) of holdings had been purchased on the primary market and Eu32.192bn (79.97%) on the secondary.

Meanwhile, with the final terms and conditions of the ECB’s extended asset purchase programme (EAPP) expected to be announced after an ECB meeting on Thursday, analysts anticipate that the pace of covered bond purchasing will eventually slow as pressure is eased on CBPP3.

Analysts at Société Générale, referring to minutes from an ECB meeting on 22 January, said that their expectation that CBPP3 buying should fall to below Eu10bn per month has been “reinforced”.

“We know the outcome now, but interestingly the minutes revealed the sense of urgency that prevailed during the meeting, with the ‘front-loaded’ purchase option being effectively decided,” the analysts said.

“The ECB at first contemplated Eu50bn of new purchases as a complement to existing programmes. But there was also broad support for the Eu60bn size which includes both the new purchases and elements of frontloading. That suggests that the expected size of the ABS and CBPP3 is lower than Eu10bn per month.”

The minutes’ referral to agency and supranational debt as a natural “extension” of the current purchase programmes also suggests that a large range of such debts will be eligible for the programme, the Société Générale analysts added.

However, analysts at Danske Bank noted that many market participants are struggling to see how the ECB will meet its target of buying Eu60bn of assets per month from March until at least September 2016, without causing significant distortion in the European government market. The analysts cited a lack of supply, with the budget deficit of the Eurozone expected to fall to 2.3% of GDP in 2015, and an increase in demand for EU government debt as potential obstacles.

Jan King, senior covered bond strategist at RBS, said the impact of sovereign QE on the covered bond market depended on the ECB’s ability to meet its monthly target.

“The important thing to watch for is whether there will be room for a reduction of CBPP3 buying,” he said. “What we want to see is which agencies and which supranationals will be eligible for QE.”

King noted that the ECB has announced a fixed share under the full QE programme for supranational paper of 12% of additional purchases (i.e. the ECB’s monthly Eu60bn purchasing target less CBPP3 and ABSPP buying).

“The eligibility of supranationals is quite crucial in my view,” he said. “If you look at the paper available, depending on how eligibility is defined, the ECB must buy a significant amount by September 2016.”

He noted that a large amount of outstanding supranational paper is in the two year to five year space, suggesting that if the ECB were to rule out buying assets trading with negative yields or introduce similar caps it would “at least lower the scope for reduction of CBPP3 buying”.

“The narrower they define eligibility, the more they will need to buy from that limited pool,” he said. “The more supras they buy, the more leeway there is for a reduction of covered bond purchases.”

Any increase in scope for the ECB’s Asset Backed Securities Purchase Programme (ABSPP) would also help the covered bond market, King added.

He said he expects the ECB to reduce the pace and volume of buying under CBPP3 gradually once sovereign QE begins, rather than immediately.

“To suddenly reduce buying would give the wrong signal,” he said, “and it would give away control if the ECB must later go back to covered bonds and increase the buying volume again.”