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CBPP3 solid in November, but fails to stem widening

Gross weekly CBPP3 purchases were at their lowest level since August last week, but analysts highlighted that that the decrease since the monthly APP target was halved has remained modest in November. However, the consistent Eurosystem buying has not countered spread widening, noted one.

Settled and outstanding purchases under CBPP3 rose EUR117m in the week to last Friday, to EUR262.429bn from EUR261.483bn a week earlier. According to ECB figures released on Tuesday, there were redemptions of some EUR300m in the week, meaning gross purchases were around EUR417m. This compares with an increase of EUR829m in the portfolio the previous week, when there were no redemptions.

This week’s gross increase is the lowest since the week ending 24 August, during the summer holiday season.

However, according to Joost Beaumont, senior fixed income strategist at ABN Amro, the CBPP3 portfolio has already increased more in November, with EUR1.7bn of net purchases so far, than it did in the whole of October, when it rose EUR1.5bn, and not much less than the EUR2.2bn average monthly net buying for the year.

Crédit Agricole analysts estimated that primary market purchases accounted for around EUR120m of last week’s increase, implying average daily secondary market purchases of around EUR59m – their lowest level since the week ending 31 August. However, this comes after a EUR150m daily average the previous week, according to Crédit Agricole estimates, which was the highest since the last week of June.

“So far this month, the Eurosystem will likely have purchased almost EUR2bn in secondary markets,” said the analysts. “On the one hand this shows how committed they still are, despite a lower APP total.

“However, at the same time, it also shows how weak the market has been. Despite the CBPP3 secondary market buying and limited new issuance volumes, spreads have moved wider by a good 5bp this month.”