The Eurosystem bought as little as 6% of CBPP3-eligible new issuance in October, a record low, but secondary buying was buoyant, meaning gross purchases fell proportionately much less than the overall halving of APP last month to EUR15bn.

Gross settlements under CBPP3 were EUR3.148bn in October, down from EUR4.115bn in September (which was the biggest month since March), but still more than 80% of the average monthly purchases when the ECB was buying EUR30bn monthly under its overall asset purchase programme (APP) from January to September.

Analysts at Crédit Agricole noted that the decline in the month’s purchases was accounted for by a drop in primary buying.

“Given the Eurosystem has reduced primary market orders to as little as 10%, this should not come as a surprise to anyone,” they said. “What is probably more of a surprise to some (not us) is the fact that secondary settlements have offset the decline in primary market settlements to a large extent.

“At EUR2.726bn, they were at their second highest since December last year.”

Analysts increasingly believe that the dominance of secondary market purchases in the Eurosystem’s activity sets the scene for 2019, after net buying under APP ends and only reinvestments drive purchases.

“In our view, this shows quite nicely what markets can expect from the CBPP 3 in 2019 – very little if any buying in primary markets but almost business as usual in secondary markets,” said the Crédit Agricole analysts.

Danske analysts suggested the focus on secondary market purchases could be explained by the Eurosystem aiming to broadly follow a benchmark based on the market capitalisation of eligible bonds.

“Given that peripheral issuers have largely remained absent from the primary market recently,” they said, “relying too much on primary market purchases could cause the CBPP3 portfolio to become biased relative to the benchmark. Furthermore, given that reinvestments will play an increasing role going forward, replacing maturing bonds from a given jurisdiction should be easier in the secondary market.

“That said, ECB has stated that it does not follow a strict allocation of total volume to jurisdiction.”

Last week settled and outstanding purchases under CBPP3 rose EUR571m, from EUR260.428bn to EUR260.999bn. According to figures released by the ECB yesterday (Tuesday), there were no redemptions in the CBPP3 portfolio.

Analysts estimated the Eurosystem bought around EUR110m of eligible supply settling in the relevant period, meaning that average daily secondary market purchases were around EUR92m, which would be the first time in seven weeks that they have been below EUR100m.