CBBP3 weekly gross buying falls to post-summer low
Gross weekly purchases under CBPP3 were at their lowest level since August last week, at EUR484m, with only one eligible benchmark settling in the relevant period and secondary buying easing off.
Settled and outstanding purchases under CBPP3 increased to EUR261.483bn as of Friday (9 November) from EUR260.999bn a week earlier. According to ECB figures released yesterday (Tuesday), there were no redemptions in the CBPP3 portfolio.
The EUR484m gross of purchases is the lowest since the week-ending 24 August, when only EUR230m was bought in the middle of the summer holiday season.
Only one eligible benchmark settled last week, a EUR500m long five year MünchenerHyp Ecological ESG Pfandbrief. If the Eurosystem took EUR15m (3%) or more of this, it would mean average daily secondary market purchases were last week at their lowest level since the week-ending 31 August (when they were an estimated EUR57m), although at around EUR90m per day not far off the EUR113m average since then.
Bernd Volk, head of covered bond and SSA research at Deutsche Bank, noted that in the primary market central bank participation (by the Eurosystem and other central banks and official institutions) in CBPP3-eligible issuance is already not significantly different from deals not eligible for CBPP3. He cited eight CBPP3-eligible deals with central bank/official institution participation ranging from 7% to 22% and averaging 14.6% (not weighted for deal size), and three CBPP3-ineligble deals ranging from 11% to 17% and averaging 14.7%
“Hence, despite CBPP3 being in reinvestment phase in 2019 and beyond, a normalisation of central bank participations in new euro benchmark covered bond issues seems likely,” said Volk.
He noted that, according to European Covered Bond Council figures, central bank participation averaged 15% from 2007 to 2012.
“However, given the still ultra-low absolute yields, we struggle to see fund managers and pension/insurance companies taking a share of 50% (as in 2012),” he added, “with the difference likely purchased by banks due to the privileged regulatory treatment and the pick-up to core euro area sovereign bonds.”