The ECB registered some EUR689m of gross covered bond purchases last week – almost exactly in line with the previous week – with the focus again on the secondary market. That focus may shift given burgeoning supply, which could support the reinvestment of heavy upcoming redemptions.

ECB figures released on Monday show the CBPP3 portfolio increased EUR489m, from EUR253.270bn to EUR253.759bn, in the week to last Friday. Figures released yesterday (Tuesday) afternoon show some EUR200m CBPP3 holdings matured last week, implying gross purchases of around EUR689m.

Gross purchases were therefore in line with from EUR687m settled in the previous week, but still well below the 2018 average of EUR1.085bn.

Two CBPP3-eligible deals settled last week, a EUR500m Pfandbrief for Deutsche Bank, of which central banks and official institutions were allocated 33%, and a EUR300m issue for Hypo Oberösterreich, of which central banks and official institutions took 23%.

Analysts estimated that the Eurosystem’s bought around EUR135m in aggregate of the two deals. This implies secondary market purchases averaged around EUR111m per day, down slightly from around EUR122m-EUR134m per day in the previous week.

Amid relatively limited new issuance, the Eurosystem has so far this month focussed on the secondary market. However, given a marked increase in supply this week – with five CBPP3-elibile euro benchmark covered bonds issued yesterday and today – analysts expect the primary market’s contribution to CBPP3 settlements to increase correspondingly.

Redemptions in the CBPP3 portfolio will in June be the highest for any month this year, with EUR3.202bn to be reinvested.

Market participants said this will not necessarily result in the ECB having to increase the size of its orders for new issues – which since mid-April have been reduced to around 30% of an expected issuance size – given the expected supply volumes and that the ECB could source more bonds on the secondary market.

“If supply goes up as expected, that means they can source more bonds on primary even at the current buying rate of 30%,” said a syndicate banker. “If they did increase their orders I am sure no issuer in the market would object to it, but it would be somewhat counterintuitive, as the market is working now at recalibrated spread levels.”