Gross CBPP3 purchases totalled some EUR700m in the first week to feel the impact of a halving of the monthly APP target and a cut to 10% for Eurosystem new issue orders, although secondary buying held up relative to the overall and primary market reductions.

Settled and outstanding purchases in the CBPP3 portfolio at the end of last week increased EUR501m, from EUR259.270bn a week earlier to EUR259.771bn.

According to figures released by the ECB today (Tuesday), CBPP3 redemptions last week amounted to some EUR200m, implying gross purchases of EUR701m for the week – down from EUR1.386bn the previous week and versus an average of EUR884m per week for 2018.

The latest weekly figures are the first to reflect the reduction in typical Eurosystem orders for new issues from 30% to 10% for eligible benchmarks that settle in October, with the monthly target for the overall asset purchase programme (APP) having been cut from EUR30bn to EUR15bn from this month until year-end.

Three such benchmarks settled last week for an aggregate EUR1.75bn. Crédit Agricole analysts estimate that CBPP3 allocations were on average 8%. This implies primary market purchase of EUR140m, meaning that secondary market purchases averaged around EUR112m per day.

“While primary market orders seem to have dropped substantially in October, for now nothing seems to have changed for gross secondary market purchases, despite the drop in monthly APP purchases,” said the Crédit Agricole analysts.

Analysts have highlighted their expectation that the ECB will remain active in covered bonds, and notably the primary market, even when APP reaches its anticipated end at the turn of the year.

“The major question now is what the end of the net asset purchases under the APP will mean for ECB primary participation as of next year,” said Maureen Schuller, head of financials research at ING. “Is the CBPP3 going to further reduce its order size to potentially 0% irrespective of its reinvestments of redemption payments? Or will the order size remain stable at today’s 10% level, even though the ECB does not have to reinvest CBPP3 redemption payments in covered bonds?

“We expect the CBPP3 to remain involved in covered bond primary. The primary market is an easier reinvestment route than the secondary market.”

She noted that EUR12bn of CBPP3 redemptions fall due in the first half of 2019 and said that if supply in those six months matches that of the first half of 2018, EUR61bn, reinvestments could take up around 20% of such supply.