Gross CBPP3 purchases fell month-on-month in February upon lower issuance, even as secondary buying rose. CBPP3’s share of net QE settlements remained elevated, but an ECB official said purchases in the first two months of the year may not be indicative of future buying.

European Central Bank figures released on Monday show that the CBPP3 portfolio grew EUR3.055bn in February, down slightly from EUR3.363bn in January. Gross purchases totalled EUR4.381bn last month, given the redemption of EUR1.326bn of portfolio holdings. This compares with gross purchases of EUR6.233bn in January.

“The EUR9bn drop in eligible euro benchmark primary settlements in February to EUR6bn was primarily responsible for the slower purchase pace,” said Maureen Schuller, head of financials research at ING.

Analysts said primary market purchases fell EUR2.789bn, from EUR4.839bn to EUR2.050bn, while secondary market purchases increased EUR937m, from EUR1.393bn to EUR2.330bn.

“But this was insufficient to fully compensate for the decline in primary buying,” said Schuller.

Speaking during a panel discussion at an LBBW European Covered Bond Forum in Mainz on Thursday, Kieran Leonard, portfolio management expert, bond markets and international operations division, ECB, said that the start to the year had for the central bank been “business as usual”.

He said that while the Eurosystem is now targeting EUR30bn of QE purchases per month, rather than EUR60bn, its modus operandi is unchanged and it is “consistently” buying assets in the market every day. He added that recent wider market volatility has not affected the implementation of the asset purchase programme in that sense.

In February, CBPP3 accounted for 10.1% of total net APP settlements, roughly in line with 11.1% in January, and around double the average of 2017. Before the turn of the year, analysts had expected CBPP3 purchases to continue largely unaffected by the halving of the Eurosystem’s monthly target from EUR60bn per month to EUR30bn per month, and see purchase patterns in the first two months of the year as vindicated those predictions.

“The drop in the overall QE pace has so far been absorbed by the PSPP and we continue to believe this will be the case in the coming months,” said Florian Eichert, head of covered bond and SSA research at Crédit Agricole. “For CBPP3, we continue to believe that gross buying will come in at around EUR4.5bn per month on average for 2018.”

Leonard (pictured, second left) noted that observers have in general highlighted that the share of APP purchases made under the private sector purchase programmes over the course of January and into February has been higher than in previous years.

“With those programmes we are involved in both secondary and primary markets, and I think people have to be aware of seasonality,” he said. “Seasonality happens in terms of issuance, and what we see in January and February may not indicate where we will be going forward.

“These are patterns that have existed over the last number of years.”

Leonard reiterated that the ECB’s stance on APP remains that purchases will be ongoing until the end of September or beyond, if necessary, with the first hike of the key ECB interest rates to take place well past the horizon of net asset purchases, and a reinvestment phase to continue for an extended period of time after the end of net asset purchases, and in any case for as long as necessary.

Concern about the winding-down of the ECB’s asset purchases has been cited as a possibly key factor behind the recent bout of wider market volatility. However, Leonard said “other factors were also at play”, highlighting that developments in the US were important.

“If you look at spreads – corporate spreads, covered bond spreads and sovereign spreads – they didn’t really react,” he said. “That might indicate that there were other external factors in play as well, and it wasn’t necessarily expectations regarding APP that lead to the volatility we saw in January.”

In the week to last Friday, the CBPP3 portfolio increased EUR526m, from EUR247.216bn to EUR247.742bn. Gross purchases totalled around EUR1.262m, as figures released yesterday (Tuesday) afternoon show that around EUR700m of CBPP3 holdings matured last week.

Analysts estimate the Eurosystem bought around EUR700m of covered bonds on the primary market last week, implying that secondary market purchases averaged around EUR112m per day, up from around EUR60m per day in the previous week.