The ECB last week registered a near EUR1bn week-on-week fall in gross CBPP3 purchases on the back of limited eligible supply, raising questions of how the Eurosystem will reinvest heavy June portfolio redemptions, while attention turns to a potentially crucial ECB meeting tomorrow.

ECB figures released on Monday show the CBPP3 portfolio increased EUR82m in the week to last Friday, from EUR254.551bn to EUR254.633bn. Figures released yesterday (Tuesday) afternoon show that some EUR500m of CBPP3 holdings matured last week, implying gross purchases of around EUR582m.

This is down from gross purchases of around EUR1.554bn in the previous week, which were the highest of any week since February, and brings gross purchases back into line with those seen in May.

“But because the central bank has relatively large reinvestments in June, this seems a bit odd, as it implies that the Eurosystem should step up the pace of purchases before the end of the month, or it is planning to smooth June’s reinvestments over the coming months,” said Joost Beaumont, senior fixed income strategist at ABN Amro. “Given that the Eurosystem tends to take a break in August, this would imply that it will remain relatively active in coming weeks.

“As such, any spread widening on a taper announcement tomorrow should remain limited.”

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

The week on week fall in purchases was attributed to the lack of eligible supply. Only one CBPP3-eligible deal settled last week, a EUR300m issue for Oberbank, while EUR5.5bn settled in the previous week.

Analysts estimated the Eurosystem bought around EUR30m of the Oberbank deal, implying that secondary market purchases averaged around EUR110m per day last week, compared with estimates of EUR50m-EUR130m per day in the previous week.

The ECB governing council is holding its latest meeting in Latvia tomorrow, and hawkish comments from ECB officials in the run-up to the event have raised expectations that discussions will be held on when the ECB should exit its QE programme, potentially resulting in an announcement in the press conference afterwards.