The Eurosystem is frontloading buying under its expanded asset purchase programme (EAPP) this month and next ahead of anticipated lower market liquidity in the summer holiday season, Benoît Cœuré, member of the executive board of the ECB said yesterday (Monday).

He said that the speed of the rapid reversal in Bund yields was “yet another incident of extreme volatility in global capital markets showing signs of reduced liquidity”, even if the move itself was not a cause for concern, according to a text of the speech released today (Tuesday).

“Against this background, we are also aware of seasonal patterns in fixed income market activity with the traditional holiday period from mid-July to August characterised by notably lower market liquidity,” he said. “The Eurosystem is taking this into account in the implementation of its EAPP by moderately frontloading its purchase activity in May and June, which will allow us to maintain our monthly average of Eu60bn, while having to buy less in the holiday period.

“If need be, the frontloading may be complemented by some backloading in September when market liquidity is expected to improve again,” he added. “The slightly higher purchase volume that market analysts may observe in the coming weeks is therefore unrelated to the recent episode of market volatility.”

Jussi Harju, covered bond analyst at Barclays, had anticipated such a move yesterday afternoon after the latest weekly release of EAPP figures by the ECB. Settled outstandings under CBPP3 increased Eu2.783bn last week and analysts estimated that weekly purchases on the secondary market rose to their highest level of the year, with the only CBPP3-eligible deal to settle last week having been a Eu150m tap from Caffil.

“Despite the slowdown in the primary activity, CBPP3 purchase activity seems to continue unabated,” said Harju. “The elevated purchase activity is likely due to the Eurosystem ramping up its purchases in anticipation of the quieter summer months when primary activity slows down and fewer bonds will be available for CBPP3 to buy.”

Purchases settled and outstanding under the third covered bond purchase programme as of Friday stood at Eu80.759bn versus Eu77.976bn a week previously.

Analysts at Crédit Agricole suggested that the recent sell-off in rates may have continued to support the Eurosystem’s buying on secondary markets.

With no CBPP3-eligible deals due to settle this week, analysts noted next week’s figure will comprise only secondary purchases.

The pace of purchases under the public sector purchase programme (PSPP) last week increased again, with the week’s total rising from Eu13.653bn the week before to Eu13.696bn.