CBPP3 registered a sharp increase in purchases last week on the back of the second highest secondary settlements this year, with almost all of Eu1.184bn of gross purchases coming from the secondary market. ECB officials meanwhile dashed hopes of an early rate hike.

European Central Bank figures released on Monday afternoon show the CBPP3 portfolio increased Eu284m, from Eu214.446bn to Eu214.73bn, in the week to last Friday. Portfolio redemption figures released yesterday (Tuesday) afternoon show that around Eu900m of CBPP3 holdings matured last week. Gross purchases therefore totalled around Eu1.184bn.

This is substantially higher than the gross purchases of around Eu436m recorded in the previous week – when net CBPP3 holdings fell Eu731m on the back of redemptions and a quarter-end amortisation adjustment.

Only one CBPP3-eligble benchmark covered bond settled last week, a Eu500m issue for Hypo Noe, of which central banks and official institutions were allocated just 15% (Eu75m). Analysts estimated that the Eurosystem bought around Eu60m of the deal, implying that secondary market purchases averaged around Eu225m per day last week – up sharply from the previous week’s average of Eu87m per day.

According to analysts’ estimates, these are the highest secondary settlements under the programme since the week ending 3 February, and the second highest since the week ending 15 July 2016.

“The increase in secondary market purchases mainly reflects the low supply of CBPP3-eligible deals in the primary market, which makes the Eurosystem more dependent on the secondary market,” said Joost Beaumont, senior fixed income strategist at ABN Amro.

“Last week, the central bank was again able to increase net purchases by a small amount, but we would not be surprised if the Eurosystem will be unable to increase net covered bond purchases sometime in the coming weeks. This would be mainly due to the lack of supply in the primary market as well as that it might become harder to find the paper in the secondary market.”

This week, another Eu500m of CBPP3-eligible benchmark supply will settle – two Eu250m taps for Deutsche Bank and WL Bank.

But Bernd Volk, head of covered bond and SSA research at Deutsche Bank said he disagrees with the argument that the recent lowering of CBPP3 purchases is due to lack of availability of covered bonds in the secondary market.

“The ECB might consider current spreads of covered bonds as too tight compared to other ECB QE-eligible assets,” he suggested. “However, the ECB could have purchased more covered bonds than the Eu4.734bn under CBPP3 on a gross basis in March (compared to Eu5.5bn in February).”

Speculation that the ECB could divert from its current path to raise interest rates before the end of its QE programme was undermined in speeches by ECB president Mario Draghi and executive board member Peter Praet last Thursday, and minutes of the 8-9 March monetary policy meeting of the ECB governing council released on the same day.

At a conference in Frankfurt on Thursday, Draghi said that negative rates, “in conjunction with the other elements of our easing package, have turned out to be powerful in terms of easing financial conditions, and the potential negative side effects have so far been limited”.

“The current wording of our forward guidance reflects exactly this assessment of side effects,” he said. “And from today’s standpoint, I do not see cause to deviate from the indications we have been consistently providing in the introductory statement to our press conferences.”

Draghi added that the ECB still needs to build confidence that inflation will converge to its target of just under 2% before it makes any alterations to its policy or forward guidance.

Praet said, meanwhile, that even the suggestion of a rate hike would mitigate the economic effects of its QE purchases, and said the governing council expects the policy interest rate to remain “at present or lower levels for an extended period of time and well past the horizon of our net asset purchases”.

Comments made by Draghi in the press conference following the 8-9 March meeting had been interpreted by some market participants as foreshadowing a change in the ECB’s forward guidance, and some market participants have called for a raising of the deposit rate, currently at minus 0.4%.