CBPP3 purchases registered a slowdown last week as the Eurosystem bought Eu856m of covered bonds, almost Eu300m less than the previous week, on the back of lower eligible issuance. Discussion of the eventual tapering of QE meanwhile resurfaced after Draghi’s comments on Thursday.

Note: The subject line of today’s bulletin, “CBPP3 dips, taper step inferred”, may have been understood to mean that the dip in CBPP3 buying led to discussion of tapering. However, that is not the case (as the below hopefully makes clear) and our intention was merely to highlight two separate points. Apologies for any confusion.

European Central Bank figures released on Monday show that in the week to last Friday, the CBPP3 portfolio increased Eu656m, from Eu213.137bn to Eu213.793bn. Portfolio redemption figures released yesterday (Tuesday) afternoon show that around Eu200m of CBPP3 holdings matured last week, implying gross purchases of around Eu856m. This compares with gross purchases of around Eu1.149bn in the previous week.

One CBPP3-eligible benchmark issue settled last week, a Eu500m Pfandbrief for DG Hypothekenbank. In the previous week, Eu1.5bn of CBPP3-eligible issuance settled, and analysts attributed the slowdown in purchases to the lower amount of issuance available to the Eurosystem.

Central banks were allocated 29% of DG Hyp’s deal, and analysts estimated the Eurosystem took a share of Eu90m-Eu145m, implying that its secondary market CBPP3 buying averaged some Eu140m-Eu150m per day last week. This represents a slight fall from the estimated average of around Eu170m per day in the previous week, and is roughly in line with the average volumes bought in recent weeks.

After an ECB governing council meeting last week, president Mario Draghi announced no changes to the asset purchase programme (APP), although certain less dovish comments were interpreted by some market participants as marking a step along the road to the anticipated tapering of QE.

Some analysts have suggested that a change to forward guidance, dropping a reference to further rate cuts or QE, could now come in June, with the ECB setting out its tapering plans in September.

“It could signal a tapering of asset purchases in 2018, contingent on seeing progress in inflation that would make it more confident in meeting its medium term goal,” said ABN Amro economists. “We expect tapering from April 2018 onwards at a pace of Eu10bn per month.

“That would see the programme coming to a halt in September of next year.”