Many analysts and investors expect any expansion of the ECB’s QE programme announced on 3 December to be weighted towards public sector bonds, with covered bonds underperforming as a result. The CBPP3 portfolio meanwhile grew steadily, by Eu1.416bn, in the week to Friday.

The European Central Bank is expected to announce an expansion or extension of its quantitative easing programme on 3 December after the next meeting of its governing council, and market participants expect the Eurosystem’s focus to remain on SSA and related purchases.

Michael Spies, strategist at Citi, said Citi economists’ view is that the ECB will cut its deposit rate by at least 10bp and increase the Eu60bn monthly target of the extended asset purchase programme (EAPP) to Eu75bn. Spies added, however, that it is expected the extra Eu15bn per month will be bought under the public sector purchase programme (PSPP), with no change to CBPP3.

“It is hard to assess how big the impact of this one-off meeting will be on the market,” he said, “but I’m not sure it will be a game-changer for issuers.”

Spies said this scenario would support sovereign bonds outperforming covered bonds, with covered bond purchases also expected to gradually decrease.

“I would recommend that investors prefer sovereigns, reflecting also the fact that we have not seen such a wave of supply in that market as in covereds,” he said. “I think overall the impact will be positive for sovereigns, but for covered bonds the positives will not be so pronounced.”

BayernLB analysts said their economists expect the EAPP to be continued beyond September 2016, which the ECB had indicated would be the earliest potential end-date, and the targeted monthly volume to increase to Eu80bn. At the same time, they said, the list of eligible securities is likely to be expanded within the public sector to include regional government issuers and further government-related enterprises.

“In our opinion, the expansion of accommodative monetary policy will support covered bond spreads in addition to the SSA segment,” BayernLB analysts said. “In particular, EU periphery covered bonds from top tier issuers that still offer a somewhat higher carry should give the best performance and benefit from the ECB’s participation.”

In an investor survey published by Société Générale yesterday (Monday), comprising almost 60 pan-European covered bond investors from 18 jurisdictions, 73% of respondents said they expect the ECB to extend covered bond purchases beyond 2016.

Some 45% expect the ECB to keep covered bond purchases at a similar pace, while 36% expect purchases to continue at a lower pace than the current Eu10bn per month.

The survey also found that spread expectations for next year vary by region, with spreads expected to remain stable or widen slightly for issues from core Eurozone jurisdictions and non-EEA, non-Eurozone jurisdictions. For non-EEA jurisdictions, 42% expect spreads to widen and 36% stable, while 44% expect spreads from non-core jurisdictions to benefit from ongoing CBPP3 purchases and tighten.

“Contrary to last year, over 40% of respondents expect covered bonds to underperform their respective sovereign – both for core European covered bond jurisdictions and peripheral jurisdictions,” said Cristina Costa, senior covered bond analyst at SG. “Between 30%-40% expect covered bonds to be stable and only a minority expect covered bonds to outperform.”

Over half of the investors surveyed, 53%, expect corporates to be added to the ECB’s QE “shopping list”.

Settled and outstanding purchases under the third covered bond purchase programme (CBPP3) increased from Eu132.521bn to Eu134.135bn in the week to last Friday, according to figures released by the ECB yesterday afternoon. This compares with an increase of Eu1.377bn for the previous reporting period.

Analysts said the week’s higher figure was driven by an increase in primary market purchases, noting that three CBPP3-eligible deals settled last week, making up Eu2bn of supply, compared to one Eu1bn deal in the previous week.

Estimating that the Eurosystem bought Eu600m-Eu700m of the three deals, analysts said secondary market purchases had remained in line with previous weeks, at around Eu190m-Eu200m per day, on average.

Many analysts and investors expect any expansion of the ECB’s QE programme announced on 3 December to be weighted towards public sector bonds, with covered bonds underperforming as a result. The CBPP3 portfolio meanwhile grew steadily, by Eu1.416bn, in the week to Friday.

The European Central Bank is expected to announce an expansion or extension of its quantitative easing programme on 3 December after the next meeting of its governing council, and market participants expect the Eurosystem’s focus to remain on SSA and related purchases.

Michael Spies, strategist at Citi, said Citi economists’ view is that the ECB will cut its deposit rate by at least 10bp and increase the Eu60bn monthly target of the extended asset purchase programme (EAPP) to Eu75bn. Spies added, however, that it is expected the extra Eu15bn per month will be bought under the public sector purchase programme (PSPP), with no change to CBPP3.

“It is hard to assess how big the impact of this one-off meeting will be on the market,” he said, “but I’m not sure it will be a game-changer for issuers.”

Spies said this scenario would support sovereign bonds outperforming covered bonds, with covered bond purchases also expected to gradually decrease.

“I would recommend that investors prefer sovereigns, reflecting also the fact that we have not seen such a wave of supply in that market as in covereds,” he said. “I think overall the impact will be positive for sovereigns, but for covered bonds the positives will not be so pronounced.”

BayernLB analysts said their economists expect the EAPP to be continued beyond September 2016, which the ECB had indicated would be the earliest potential end-date, and the targeted monthly volume to increase to Eu80bn. At the same time, they said, the list of eligible securities is likely to be expanded within the public sector to include regional government issuers and further government-related enterprises.

“In our opinion, the expansion of accommodative monetary policy will support covered bond spreads in addition to the SSA segment,” BayernLB analysts said. “In particular, EU periphery covered bonds from top tier issuers that still offer a somewhat higher carry should give the best performance and benefit from the ECB’s participation.”

In an investor survey published by Société Générale yesterday (Monday), comprising almost 60 pan-European covered bond investors from 18 jurisdictions, 73% of respondents said they expect the ECB to extend covered bond purchases beyond 2016.

Some 45% expect the ECB to keep covered bond purchases at a similar pace, while 36% expect purchases to continue at a lower pace than the current Eu10bn per month.

The survey also found that spread expectations for next year vary by region, with spreads expected to remain stable or widen slightly for issues from core Eurozone jurisdictions and non-EEA, non-Eurozone jurisdictions. For non-EEA jurisdictions, 42% expect spreads to widen and 36% stable, while 44% expect spreads from non-core jurisdictions to benefit from ongoing CBPP3 purchases and tighten.

“Contrary to last year, over 40% of respondents expect covered bonds to underperform their respective sovereign – both for core European covered bond jurisdictions and peripheral jurisdictions,” said Cristina Costa, senior covered bond analyst at SG. “Between 30%-40% expect covered bonds to be stable and only a minority expect covered bonds to outperform.”

Over half of the investors surveyed, 53%, expect corporates to be added to the ECB’s QE “shopping list”.

Settled and outstanding purchases under the third covered bond purchase programme (CBPP3) increased from Eu132.521bn to Eu134.135bn in the week to last Friday, according to figures released by the ECB yesterday afternoon. This compares with an increase of Eu1.377bn for the previous reporting period.

Analysts said the week’s higher figure was driven by an increase in primary market purchases, noting that three CBPP3-eligible deals settled last week, making up Eu2bn of supply, compared to one Eu1bn deal in the previous week.

Estimating that the Eurosystem bought Eu600m-Eu700m of the three deals, analysts said secondary market purchases had remained in line with previous weeks, at around Eu190m-Eu200m per day, on average.