The ECB is maintaining a flexible approach to CBPP3, with the size of its orders partly determined by activity in other private sector markets, according to the ECB’s Ad Visser, after the size of its new issue orders were cut again. CBPP3 settlements were dominated by primary market purchases last week, on the back of record April supply.

Visser, head of financial markets and collateral section at the ECB (pictured), said while speaking at an ECBC plenary last Wednesday that the Eurosystem’s approach to covered bond purchases remains “flexible”.

“It’s dependent on the total size of the primary issuance, and also on what is going on in the corporate sector purchase programme (CSPP) and the asset-backed securities purchase programme (ABSPP),” he said. “Sometimes people look only to their own piece, to covered bond-land, but there is also the CSPP – if there is a lot of issuance there, we could buy a bit less in covered bonds.

“There is no fixed rule behind it,” he said.

Visser was responding to a question from the audience about the likely direction of CBPP3 purchases in the summer – with the Eurosystem’s typical orders for new issues having been lowered from 50% to 40% in March and further to 30% last week, representing a 40% cut in the size of its orders in aggregate.

According to Maureen Schuller, head of financials research at ING, CSPP’s share of overall Eurosystem net purchases rose from 18% in February to 20.7% in March, while CBPP3 experienced a small drop in share. However, CSPP’s share has dropped back sharply to 9.3% so far this month, while CBPP3’s has risen from 9.4% to 10.9%.

“This shows that the higher recent PSPP purchases come at the expense of CSPP purchases, and not CBPP3 buying,” said Schuller.

She nevertheless noted that the Eurosystem can currently maintain its pace of covered bond purchases while taking smaller shares of individual issues given the pace of supply, with a EUR500m deal for Caja Rural de Navarra today (see separate article) taking benchmark issuance this month to EUR16.25bn and making it the busiest ever April, surpassing EUR15.9bn in 2010.

ABSPP meanwhile experienced a net EUR1.273bn surge in the first two weeks of March, including its fourth biggest week, EUR844m in the second of these. However, it has since shrunk and continues to play only a minor role in overall APP.

ECB figures released on Monday show that in the week to last Friday the CBPP3 portfolio increased EUR866m, from EUR250.991bn to EUR251.857bn. Figures released yesterday (Tuesday) afternoon show that around EUR200m of CBPP3 holdings matured last week, implying gross purchases of some EUR1.066bn.

This is down from gross purchases of EUR1.317bn in the previous week and slightly below the 2018 average of EUR1.183bn.

Five CBPP3-eligible deals settled last week, amounting to EUR3.5bn of supply, of which analysts estimated the Eurosystem bought around EUR900m-EUR1bn. This implies secondary market purchases were marginal, of around EUR13m-EUR33m per day last week. In the previous week, secondary market purchases were estimated to have averaged around EUR45m-EUR65m per day.

“However, this mainly reflects recent heavy new supply, as a result of which the central bank did not have to be active on the secondary market,” said Joost Beaumont, senior fixed income strategist at ABN Amro. “In turn, this is in line with the central bank’s practical approach.”