The CBPP3 portfolio grew by less than Eu1.5bn last week, one of its smallest weekly increases, with analysts attributing the slowdown to a lack of liquidity in an uncertain market, although the ECB’s Peter Praet said last week that purchases of private assets have proceeded relatively well.

European Central Bank figures released yesterday (Monday) showed that settled and outstanding purchases under CBPP3 rose Eu1.491bn to Eu96.058bn last week. This compares with a Eu2.203bn increase in the previous reporting period.

With no public CBPP3-eligible deals having settled last week, analysts noted that the increase relates only to secondary market purchases, which came in at an average Eu298m per day, significantly lower than in previous weeks, while the overall weekly increase is one of the smallest reported since the programme began.

“Week on week, last week’s figure is one of the lowest ever increases, and well below the Eu2.4bn average from the last eight weeks,” said Cristina Costa, senior covered bond analyst at Société Générale.

Florian Eichert, head of covered bond and SSA research at Crédit Agricole, said a lack of liquidity in the market relating to uncertainty over Greece contributed to the substantial decrease in buying.

“Only around Christmas and New Year last year did we have lower weekly settlement volumes,” he said. “The difficult market around the Greek bail-out expiry and calling of a referendum has caused many investors to sit tight and not trade, while dealers were fairly low in inventory as well.”

Market participants had expected the pace of extended asset purchase programme (EAPP) buying to increase in the run up to summer, after ECB executive board member Benoît Cœuré on 19 May said purchases would be stepped up to compensate for an anticipated lull in market activity. However, analysts noted that the pace of EAPP buying in June had remained unchanged from May, at around Eu63bn.

“You can’t read too much into it, because you never know how these things will develop, but it’s true that ever since the ECB announced they would be front-loading there has been no evidence of them front-loading on the covered bond side,” said Costa.

She noted that market activity is usually most subdued between mid-July and mid-August, and that CBPP2 purchases were very limited over the same period in 2012.

“We’re almost there, and it seems that momentum is slowing down,” said Costa. “If they are going to front-load, they are running out of time.”

Peter Praet, member of the executive board of the ECB (pictured), nevertheless said in a speech last Tuesday (30 June) that the ECB’s purchases of private assets have proceeded relatively well.

“The CBPP3 has had a strong downward impact on covered bonds spreads, which reached the tightest levels in the last five years at the start of June this year,” he said. “And though from mid-April yields have increased in line with other fixed income assets, they have done so to a lesser extent.

“As a result, the attractiveness of covered bonds has declined compared to government bonds, contributing to an increase in the amount of offers available for CBPP3 purchases. This has helped the smooth implementation of the programme thus far.”

Meanwhile, the ECB last week expanded the list of issuers eligible for its public sector purchase programme (PSPP) to include 13 new entities as agencies, including mostly state-owned companies from the infrastructure sector from peripheral states. Observers have suggested that the central bank may have expanded the list to make it easier to source bonds, or with an eye on reacting to the deteriorating Greek situation.

Bernd Volk, head of covered bond and agency research at Deutsche Bank, acknowledged the expansion of the list could have an impact on CBPP3 buying.

“I assume the ECB also takes a look at valuations – and given tight covered bond spreads they will probably focus more on sovereigns and agencies,” he said.

“Moreover, assume they target Eu15bn per week in total under EAPP – then Eu3bn in covered bonds would simply be out of proportion given the relative market sizes.”

However, SG’s Costa argued the expansion is unlikely to affect CBPP3, noting that the total purchasable volume from the 13 agencies within the two year to 30 year bucket is Eu31bn.

“At that volume, I don’t think this will be taking much away from the covered bond side,” she said. “What this extension does is add new names for jurisdictions like Portugal and Italy that did not previously feature so highly on the PSPP-eligible list.”

Analysts noted that the 13 issuers include three in which the respective states do not own a majority stake – Italian utilities Enel, Snam and Terna, in which the state holds 25% to 30%, according to analysts at LBBW.

“The ECB uses a very broad definition of the term agency,” added Volk. “Some of the new issuers are classical utilities.

“Outside the ECB, hardly anyone agrees that Enel is an agency.”

PSPP settled and outstanding purchases rose Eu10.766bn to Eu204.666bn last week, with the pace of purchases having decreased from Eu11.681 in the previous reporting period. None of the newly eligible agencies were added to the securities lending database last week.

The ECB also published its monthly breakdown of CBPP3 purchases yesterday, reporting that as of 30 June Eu16.711bn (equivalent to 17.59% of purchases) had been bought on the primary market and Eu78.286bn (82. 41%) on the secondary.