The Covered Bond Report

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CBPP3 APP share steady in April despite lower ECB orders

The monthly amount of covered bonds bought under CBPP3 held up in April, with only a slight drop in net portfolio growth and gross purchases from March levels in spite of a lowering in the size of Eurosystem orders that lead to it buying just 20% of eligible debt.

Market participants reported a fall in the size of the Eurosystem’s orders for new covered bond issuances in mid-April to around 30% of the expected issuance size. Typical orders had already decreased from 50% to around 40% of issuance size in March.

ECB figures released this week show the CBPP3 portfolio increased EUR2.776bn last month. Gross purchases totalled EUR3.909bn, given redemptions in the portfolio of EUR1.133bn.

In spite of the lowering of primary market orders, this represents only slight falls from net portfolio growth of EUR2.897bn and gross purchases of EUR4.138bn in March.

Sverre Holbek, senior analyst at Danske Bank, noted that the reduction in the size of CBPP3 orders was reflected in ECB figures that provide a breakdown of primary and second market purchases. The ECB’s primary market purchases increased only slightly, from EUR2.543bn in March to EUR2.671bn in April, despite an increase in CBPP3-eligible supply from EUR8bn to EUR13.3bn.

“This leaves the average allocation share at just 20% in April, at the lower end of the historical range,” he said. “Meanwhile, secondary gross purchases decreased slightly to EUR1.2bn (EUR1.6bn in March), the lowest monthly figure since the programme was launched.”

Overall asset purchase programme (APP) purchases amounted to EUR30.581bn in April. While the CBPP3 share remained roughly stable, buying under the corporate sector purchase programme (CSPP) fell from EUR6.403bn in March to EUR3.149bn in April, as public sector purchase programme buying increased from EUR21.09bn to EUR23.631bn

Earlier this month, ECB president Mario Draghi highlighted the flexibility of the asset purchase programme when asked about the lower CSPP purchases, echoing earlier comments from an ECB official that there is “no fixed rule” behind the lowering of CBPP3 orders.

In the week to last Friday the CBPP3 portfolio increased EUR562m, from EUR252.021bn to EUR252.583bn. No CBPP3 holdings matured last week. Gross purchases were therefore down slightly from EUR664m in the previous week and below the 2018 average of EUR1.143bn.

One CBPP3-eligible benchmark deal settled last week, a EUR1bn issue for CM-CIC, of which central banks and official institutions were allocated 24%. Analysts estimated that the Eurosystem’s share was around 20%, and therefore estimated that secondary market purchases averaged around EUR90m per day last week, their highest level since the first week of April.