A “recalibration” of ECB QE, with buying extended for at least nine months at half the current pace, is expected to have little impact on the covered bond market in the near term, and CBPP3 buying is seen continuing at the current rate, supplemented by reinvestments highlighted by Draghi.

As had been widely expected, the ECB this (Thursday) afternoon announced a reduction and extension of its asset purchase programme (APP). Purchases will continue at the current pace of Eu60bn per month until the end of December – previously the earliest end-date of the programme – and from January are intended to continue at Eu30bn per month until the end of September 2018 or beyond.

ECB president Mario Draghi said this “recalibration” of asset purchases reflects growing confidence in convergence of interest rates towards the ECB’s target.

When asked in the following press conference whether purchases might be brought to an abrupt stop from the Eu30bn per month level, Draghi stressed that the programme remained open-ended – the preference of a large majority of the governing council, he said – and will not stop suddenly.

“This is not a tapering,” he sais. “This is a downsize.”

There was no discernible movement in covered bond spreads after the announcement.

“Even moves in govvies are muted,” said a syndicate banker. “This is the outcome that most people were betting on.”

Syndicate bankers added that primary market conditions, that have been highly favourable for issuers in recent weeks, are likely to be unaffected.

“If not for the fact it is Friday tomorrow, and that we have holidays in Germany at the start of next week, I’d be happy to do a trade immediately,” said one.

The ECB also said today that reinvestments of maturing bonds will continue for an extended period of time after the end of net purchases and for as long as necessary. Draghi and Vítor Constâncio, ECB vice president, stressed that reinvestments would be sizeable, the latter giving a figure of Eu10bn per month as an example.

“We are talking about many billions per month, on average,” said Constâncio.

Draghi noted that when he had first announced that principal payments would be reinvested, he had received no reaction. The ECB’s stock of purchased assets has since become more and more important, he said.

In a press release published after Draghi’s press conference, the ECB also announced that it will each month publish the expected monthly redemption amounts for each of the four programmes that comprise the APP over a rolling 12 month period, accompanied by historical redemption figures. The first release will be published on Monday 6 November.

“The decision to start publishing these data reflects their increasing relevance, given the higher redemption amounts that will be seen in 2018,” said the ECB.

The ECB gave further information on how principal payments from PSPP holdings will be reinvested – noting that during the period of net asset purchases, these will be reinvested in the jurisdiction in which the maturing bond was bought – but did not give such clarifications for CBPP3 or the other programmes.

With regards to CBPP3, the press release said that the Eurosystem anticipates that purchase volumes under the three private sector purchase programmes, i.e. CBPP3, CSPP and ASBPP, will remain sizeable.

Prior to the ECB’s announcement, analysts said a halving of APP purchases – which was the base case of many – would not have a substantial impact on the pace of CBPP3 purchases, as most of the decline in monthly purchases is expected to come from PSPP.

“Although CBPP3 monthly net purchases could decline to around Eu2bn per month, we believe that as the programme continues, redemptions will play a larger role and hence will likely provide covered bonds with further support,” said Cristina Costa, senior covered bond analyst at SG. “We estimate that CBPP3 redemptions will total around Eu24bn in 2018 and close to Eu30bn in 2019, so we expect the Eurosystem to buy on average up to Eu2bn of covered bonds per month for reinvestment.

“And given how squeezed the secondary market is, the ECB will continue to source euro area covered bonds via the primary markets when possible.”

Joost Beaumont, senior fixed income strategist, correctly forecast that purchases would be reduced to Eu30bn per month and extended to September. He expects CBPP3 purchases to remain on a steady path next year, at around Eu3bn to Eu4bn per month.

“This, in turn, would continue the current trend that started at the beginning of last year,” he said. “Furthermore, the fact that the monthly amounts of covered bond purchases have already declined during the course of the programme also limits the room to reduce CBPP3 purchases much further.”