Growth in the CBPP3 portfolio accelerated last week on the back of higher issuance and with an increase in secondary buying, while PSPP purchases slowed. An analyst meanwhile said an ECB preference for more QE over a rate cut would make it unlikely that CBPP3 will be phased out early.

ECB figures released yesterday (Monday) afternoon show that settled and outstanding purchases under CBPP3 grew Eu2.365bn, from Eu150.537bn to Eu152.902bn, in the week to last Friday. This represents an increase in the pace of purchases, after portfolio growth of Eu1.68bn in the previous reporting period and an average of Eu1.9bn per week this year.

Some Eu3.5bn of CBPP3-eligible supply settled last week, of which analysts estimate the Eurosystem bought around Eu1.3bn-Eu1.35bn. Assuming no redemptions, this implies the ECB bought on average around Eu210m per day on the secondary market. Analysts estimated that the Eurosystem had bought Eu110m-Eu133m per day in the previous reporting period.

In spite of last week’s increase, however, the pace of CBPP3 purchases remained well below the programme’s long term average. Analysts noted that overall asset purchase programme (APP) buying has in recent months been rebalanced towards the public sector purchase programme (PSPP), with CBPP3 buying falling to around Eu7bn-Eu8bn per month, from around Eu11bn per month in the first half of 2015.

But while the pace of CBPP3 purchases increased last week, portfolio growth under PSPP and the asset backed securities purchase programme (ABSPP) slowed. ECB figures show that settled and outstanding purchases under PSPP increased Eu13.158bn to Eu557.328bn in the week to last Friday, compared with portfolio growth of Eu14.518bn in the previous week. ABSPP purchases slowed substantially to return to the programme’s typically low rate, with the portfolio growing Eu92m after having increased by Eu1.8bn in the previous week.

“Although secondary CBPP3 purchases picked up slightly and PSPP slowed down, this does not change our view that the Eurosystem is rebalancing its purchases to be more weighted towards PSPP,” added Jussi Harju, covered bond analyst at Barclays.

Some bankers have suggested the ECB could wind down CBPP3 this year, in order to reduce its impact on the covered bond market, or that purchases could at least be further reduced.

However, Bernd Volk, head of covered bond and agency research at Deutsche Bank, said there is now little scope for a further reduction of CBPP3 buying, with the ECB expected to announce additional quantitative easing and/or a cut to its deposit rate in March.

“ECB QE in general is already sizeable and it seems difficult to see how upping the dosage in March could do any good,” he said. “However, given that the market is concerned about bank capital/profitability, a more negative deposit rate is probably less likely, whereas more refi cuts or an increase in the pace of QE seems be more likely.

“Against this backdrop, CBPP3 will have to continue provide its required share and a significant further decline in monthly purchases, if any, seems very unlikely. Moreover, given higher unsecured funding costs for banks currently, more banks are likely to favour covered bond issuance.”