CBPP3 purchases will be “somewhat frontloaded” at the start of December, the ECB has announced, ahead of a pause over the Christmas period. However, analysts expect the Eurosystem to struggle to keep up the pace of net portfolio growth given a quieter market and heavy redemptions.

This month will the be the last in which the ECB targets Eu60bn of purchases under the asset purchase programme (APP), with the target to be lowered to Eu30bn per month from January to the end of September 2018, at the earliest.

The ECB announced yesterday (Monday) that it will temporarily pause APP purchases from 21 December to 29 December, “in anticipation of significantly lower market liquidity during this period and to reduce possible market distortions”.

It added that purchases in December will be “somewhat frontloaded” to take advantage of relatively better market conditions expected at the start of the month. Purchases will resume on 2 January, and the first publication of APP holdings in 2018 will be on 3 January.

In November, the ECB published for the first time expected portfolio redemptions over a rolling 12 month horizon for the four individual programmes that constitute the APP. These figures show that Eu1.527bn of CBPP3 holdings will mature in December.

Analysts said it will therefore be difficult for the Eurosystem to maintain its current pace of purchases this month, also given the hiatus in buying and expected lower issuance and liquidity.

“So, it is likely that covered bond purchases will decline in December,” said Joost Beaumont, senior fixed income strategist at ABN Amro. “Having said that, the CBPP3 programme is rather flexible, with the central bank being able to smooth reinvestments.”

January typically brings heavy issuance upon the reopening of the market, and analysts and market participants expect next month to be no different. They said this will give the ECB an opportunity to make up for any December shortfall in buying by picking up bonds on the primary market.

However, Beaumont noted that in January reinvestments will again be sizeable, at Eu2.865bn, the second highest of any month in the next 12 months.

“This will probably mean that reinvestments will be smoothed further forward,” he said.

According to ECB figures released on Monday, the CBPP3 portfolio increased Eu3.927bn in November. When redemptions of Eu410m are taken into account, gross purchases totalled Eu4.327bn.

This is down from net portfolio growth of Eu4.686bn and gross purchases of Eu5.188bn in October. The slowdown was attributed to lower levels of eligible supply, while analysts also noted that the share of primary market purchases in last month’s total was relatively low at Eu879m, down from Eu2.254bn in October.

“Not only were Eu3.5bn lower primary settlements compared to October responsible for the decline,” said Maureen Schuller, head of financials research at ING, “also the ECB’s more moderate 17% participation rate in eligible primary deals form an explanation for the modest primary purchase amount.”

Settled and outstanding purchases under the third covered bond purchase programme grew Eu1.059bn, from Eu239.164bn to Eu240.223bn in the week to last Friday. Figures released today (Tuesday) show that no CBPP3 holdings matured last week.

Gross purchases were therefore down from Eu1.396bn in the previous week, and closer to the 2017 average of Eu1.116bn per week.

One CBPP3-eligible deal settled last week, a Eu500m issue for Berlin Hyp. Analysts estimated that the Eurosystem bought 10%-15% of the deal, implying that secondary market purchases averaged around Eu200m per day.