The CBPP3 portfolio fell Eu731m last week, on the back of redemptions and a quarter-end amortisation adjustment. CBPP3’s pace had also slowed in March, but again when sizeable redemptions are taken into account the decrease was not so substantial, in the last month before a lowering of the ECB’s QE target.

European Central Bank figures released on Tuesday afternoon show the CBPP3 portfolio increased Eu1.867bn in March. When portfolio redemptions of around Eu2.3bn and a quarter-end amortisation adjustment of Eu567m are taken into account, the Eurosystem’s gross covered bond purchases totalled around Eu4.734bn last month.

While the net increase is one of the lowest under the programme, the gross purchases are closer to the Eu5.53bn bought in February.

“So while we are talking about a drop in the level of activity, it would be an exaggeration to call this substantial,” said Florian Eichert, head of covered bond and SSA research at Crédit Agricole. “It is more in line with a low level of new issuance while March’s lower level of volatility related to political risk led to less selling pressure in the secondary markets.

“In other words, it was business as usual for the CBPP3.”

In the week to last Friday, the CBPP3 portfolio decreased Eu731m, from Eu215.177bn to Eu214.446bn.

Portfolio redemption figures released yesterday (Wednesday) afternoon show that around Eu600m of CBPP3 holdings matured last week. Accounting for these redemptions and the quarter-end amortisation adjustment, gross purchases therefore totalled around Eu436m, down from around Eu1.605bn in the previous week.

No CBPP3-eligible benchmark issuance settled last week, implying that secondary market purchases averaged Eu87m per day, down from Eu160m-Eu200m in the previous week.

As of Monday, the ECB lowered its monthly target for buying under its asset purchase programme (APP) from Eu80bn to Eu60bn. Analysts expect the reduction to mainly come from the public sector purchase programme (PSPP), and do not believe this will result in a substantial reduction of CBPP3 purchases in the near term.

“In covered bonds, we expect the ECB to continue buying covered bonds at a rhythm of around Eu3bn-Eu4bn of net purchases given overall lower volumes of CBPP3-eligible and very low levels of liquidity in the covered bond secondary market,” said Cristina Costa, senior covered bond analyst at SG.

“However, we expect the ECB to remain flexible in its approach, buying more CBs when there is more primary market activity.”