The Eurosystem bought some Eu5.6bn of covered bonds last month, making November CBPP3’s busiest month in the second half of the year, and analysts said the substantial step-up in purchases, on the back of increased secondary market buying, put paid to talk of early tapering of the programme.

European Central Bank figures released on Monday show that the CBPP3 portfolio increased Eu4.993bn in November. When taking around Eu600m of redemptions in the portfolio into account, this implies gross purchases of around Eu5.6bn.

This is both the highest net increase in the portfolio since June and the highest gross purchases since then, when the portfolio grew by a net Eu5.6bn and gross purchases totalled around Eu7bn.

According to analysts’ estimates, primary market purchases rose slightly versus October, assisted by higher volumes of issuance.

“The main reason for the jump in settlements, however, came from secondary buying,” said Florian Eichert, head of covered bond and SSA research at Crédit Agricole. “After October’s Eu2.4bn of gross secondary buying, November’s was Eu3.8bn.

“So much for the concerns that the CBPP3 was going to be phased out early.”

Following the below average purchase volumes in the second half of the year, and in light of comments by ECB governing council member Ewald Nowotny in October, some market participants had suggested that CBPP3 – along with the ECB’s other purchase programmes – could be tapered.

Joost Beaumont, senior fixed income strategist at ABN Amro, agreed that November’s purchases showed that no such tapering has yet begun.

“Looking forward, we expect the Eurosystem will buy around Eu4bn-Eu5bn of covered bonds in the coming months,” he added, “although the number could be higher during the first few months of 2017, as we expect heavy supply at the start of the year.”

The ECB will hold a governing council meeting tomorrow (Thursday), and most market participants now expect president Mario Draghi to announce an extension of the asset purchase programme (APP) by a minimum of six months beyond its current earliest end-date of March 2017.

ECB figures released on Monday show that settled and outstanding purchases under CBPP3 increased Eu1.214bn, from Eu202.204bn to Eu203.418bn, in the week to last Friday. Redemption figures published yesterday (Tuesday) afternoon show that no CBPP3 holdings matured last week, implying that gross purchases were the same as the net portfolio growth.

Some Eu1.5bn of CBPP3-eligible issuance settled last week, of which analysts estimate the Eurosystem bought around Eu600m. This implies that gross secondary market purchases averaged around Eu122m per day, compared with around Eu115m-Eu135m per day in the previous week.

The ECB has said its QE buying will be frontloaded during the period 29 November to 21 December, to take advantage of expected “relatively better market conditions” before a pause in purchases from 22-30 December, when liquidity is expected to be lower.

Photo credit: ECB/Flickr