Settled and outstanding purchases under CBPP3 rose by just Eu1.414bn in the week to last Friday, the lowest weekly increase since the programme was up-and-running, with holidays and potential difficulties in sourcing bonds cited as possible factors in the low figure.

According to data released by the European Central Bank yesterday (Monday) afternoon, the CBPP3 portfolio grew from Eu106.645bn to Eu108.059bn. The increase is the lowest weekly total apart from the first days of the programme and two weeks at the turn of the year that corresponded with a holiday suspension of the programme.

The Eu1.414bn increase comes after an increase of Eu2.642bn, which in turn followed a rise of Eu2.317bn, and is closer to a Eu1.511bn figure for the week-ending 24 July. The two Eu2bn-plus weeks corresponded with a surge in euro benchmark covered bond issuance, although the higher figure was also interpreted as being on the back of an unexpected mid-summer pick-up in secondary purchases.

With no eligible public primary market deals having settled in the latest reporting period, the Eu1.414bn increase implies average daily secondary market purchases of Eu283m, according to Jussi Harju, covered bond analyst at Barclays.

“The slowdown in secondary purchases further highlights the difficulty for the Eurosystem to source bonds, as was also highlighted in the minutes for the ECB governing council meeting on 15-16 July,” he said.

According to the minutes, released on Thursday, ECB executive board member Benoît Cœuré said that portfolio managers had reported that purchases of eligible covered bonds were becoming more challenging, and cited several factors as having contributed to the situation.

“First, euro area covered bond supply had slowed since the end of May and had remained quite low compared with previous years,” he said. “Second, the period of volatility had reinforced the status of covered bonds as a safe-haven instrument, which was also consistent with their favourable regulatory treatment, including the no bail-in treatment under the Bank Recovery & Resolution Directive (BRRD).

“Covered bonds had thus benefitted from the flight to quality and this had possibly deterred some investors from reducing their covered bond positions in favour of other assets with better relative value.”

Cœuré had earlier, in May, said that market liquidity was expected to fall in August and the ECB would therefore frontload buying under the expanded asset purchase programme (EAPP) ahead of this, and possibly also backload in September.