The pace of growth of the CBPP3 portfolio was maintained last week, as it increased Eu1.559bn, but analysts noted that secondary market purchases had slowed again. The ECB meanwhile last week changed its rules for “own used” covered bonds in its collateral framework.

Settled and outstanding purchases under the ECB’s third covered bond purchase programme increased from Eu134.135bn to Eu135.694bn in the week to last Friday, figures released by the central bank yesterday (Monday) afternoon show. This compares to portfolio growth of Eu1.416bn in the previous reporting period.

Three CBPP3-eligible benchmark deals settled last week, comprising Eu2.25bn of supply. Analysts estimated the Eurosystem bought Eu750m-Eu800m of these deals in aggregate, implying average daily purchases of Eu154m-Eu162m on the secondary market. Analysts noted that the rate of secondary buying had therefore slowed compared with the previous reporting period, from an average of Eu190m-Eu200m per day.

“With only one week to go in November, we doubt whether the Eurosystem will reach the Eu10bn of total covered bond purchases this month, which seemed the target in previous months,” added Joost Beaumont, senior fixed income strategist at ABN Amro.

“Assuming that the central bank keeps the current pace of buying in the secondary market, and given that it will be able to buy some more covered bonds in the primary market, we expect that the total amount of CBPP3 purchases will be around Eu8bn in November.”

The ECB on Wednesday of last week announced a change to its rules on “own used” covered bonds – covered bonds submitted to the ECB as collateral by their issuer or an entity closely linked to the issuer – with respect to additional valuation haircuts.

Previously, the ECB said that own used covered bonds meant covered bonds issued by a counterparty or entities closely linked to it and used as collateral in a percentage greater than 75% of the outstanding nominal amount by the counterparty and/or its closely linked entities, according to Bernd Volk, head of covered bond and agency research at Deutsche Bank. And under the previous stance additional valuation haircuts were applied to any such own used issues.

Additional haircuts will now be applied only to the share of the covered bond issue that is own used and not to an entire issue, irrespective of how much serves as own used collateral.

“In case our understanding is correct, this would provide a clear incentive for increased public issuance,” said Volk.

The additional valuation haircuts for own used covered bonds are 8% for instruments of credit quality steps 1 and 2, and 12% for credit quality step 3.

The ECB also included a criterion that “if the additional valuation haircut referred to in paragraph (b) cannot be applied with respect to a collateral management system of an NCB, triparty agent, or TARGET2-Securities for autocollateralisation, the additional valuation haircut shall be applied in such systems or platform to the entire issuance value of the covered bonds that can be own used”.