The ECB stepped up covered bond purchases last week, doubling the pace of secondary market buying in an apparent attempt to keep volumes steady in the final, holiday-interrupted month of its Asset Purchase Programme, with the focus turning to reinvestments in January.

Settled and outstanding purchases as of Friday stood at EUR262.590bn, up EUR379m from EUR262.211bn a week previously. According to figures released by the ECB yesterday (Tuesday), some EUR500m of covered bonds in the CBPP3 portfolio matured last week, meaning gross buying was around EUR879m.

This is sharply up on the previous week, when gross buying was around EUR482m and the portfolio shrank EUR218m on the back of large redemptions.

Only one CBPP3-eligible benchmark settled last week: a EUR500m long four year Pfandbrief, which now looks set to go down as the final eligible benchmark of the CBPP3 era. If the Eurosystem was allocated its typical 10% order (i.e. EUR50m), average daily secondary market purchases were around EUR165m, roughly double the pace of the previous two weeks.

A step-up in buying had been anticipated in order for the ECB to be able to maintain net monthly covered bond buying at a similar pace to the previous two months (around EUR1.5bn), given that it is expected to be again inactive in the last week or two of the month due to the holiday period, and that it has EUR1.137bn of redemptions this month.

“Looking forward, it is very likely that the central bank will remain very active this week and next, before it will end its net purchases, sticking to the reinvestment of redeeming principal amounts from January onward,” said Joost Beaumont, senior fixed income strategist at ABN Amro, noting that across 2019 reinvestments will total EUR23bn.

The governing council of the ECB will be holding its final meeting of the year tomorrow (Thursday) and Rabobank analysts expect the central bank to shed some more light on how it will reinvest APP redemptions. While they do not anticipate much transparency, the analysts nevertheless suggested a potential first end date of the reinvestment purchases could be given, albeit one “far away”.

Photo: Mario Draghi at a European Cultural Day of the ECB in October. Source: ECB/Flickr; © European Union 2018