The European Central Bank will not buy covered bonds at yields below its deposit facility rate under CBPP3, it said yesterday (Thursday), after having raised the possibility of doing so on 8 December when it announced plans to adjust the parameters of its Asset Purchase Programme (APP).

In December the ECB pushed the earliest end date of the APP out to December 2017, with a lower monthly volume of Eu60bn from April, and also announced changes to some of its parameters.

The ECB said purchases under the APP with a yield to maturity below the interest rate on its deposit facility rate (DFR) would be permitted “to the extent necessary”, and a provisional document to amend CBPP3 reflecting this language was published, leading some market participants to believe that the move was a fait accompli, even though the central bank specified that implementation details needed to be worked out by the relevant committees.

The ECB then yesterday said that purchases of assets below the deposit facility rate will only occur under the public sector purchase programme (PSPP), with none under the third covered bond purchase programme, the asset-backed securities purchase programme (ABSPP) and the corporate sector purchase programme (CSPP).

Joost Beaumont, senior fixed income strategist at ABN Amro, said that the announcement likely snuffed out any optimism the December announcement may have led to at the short end.

“But in all honesty, there are currently hardly any covered bonds trading below minus 0.4%,” he added. “As such, the impact on the market should remain limited.”

Photo: ECB/Flickr