Eurosystem orders for 40% of benchmarks launched into the CBPP3 restart yesterday (Wednesday) could represent a shift in new issue tactics or a greater focus on the primary market, analysts have suggested, or – potentially most disruptively – covered bonds making up a greater proportion of APP.

According to syndicate bankers, the Eurosystem placed orders for 40% of €500m 10 year Deutsche Kreditbank and €1.25bn seven year BPCE SFH benchmarks. Covered bond analysts now expect CBPP3 purchases to remain at or around the same level for the foreseeable future.

“In recent weeks there has been much speculation about ECB investment patterns in the primary market,” said Jörg Homey, covered bond analyst at DZ Bank. “It was clear that ECB orders would no longer account for only 5% of expected issue volume.

“However, would levels reach 50% again, as at the peak of the programme? From the new issues on Wednesday it can be concluded that the ECB can be expected to place future orders amounting to 40% of the expected new issue volumes of eligible covered bonds.”

Although the Eurosystem put in orders for 40% of yesterday’s issues, it was allocated 33% of BPCE’s and 11% of DKB’s, and Joost Beaumont, senior fixed income strategist, ABN Amro, said one possible explanation for the “unexpected” increase in the central bank’s bid share in the primary market could be anticipated lower deal allocations from issuers.

“The central bank hardly ever gets full allocation in new deals,” he said.

Beaumont said that according to ABN Amro estimates, in previous CBPP iterations, the Eurosystem was allocated on average 27% of deals when it put in orders of 50%.

“Following this logic,” he said, “this would imply that the central bank will get on average 24% allocated of new deals now that it puts in an order of 40% of the expected size.”

Maureen Schuller, head of financials research, ING, suggested the 40% bid size could indicate that the central bank is placing more emphasis on net primary issuance than previously.

“It makes sense, given the significant share the central bank already holds of the eligible covered bond debt (around 38%),” she said. “Considering the substantial part of the older ISINs already held, it only seems logical the CBPP3 would try to buy more of the newer deals (either in primary or subsequently in secondary).”

Schuller added that in general, a frontloading of buying occurs before the ECB temporarily halts its purchases for year-end holidays, which could also shed light on the reasons for the higher bid size.

After considering various explanations, Beaumont said the most probable one is that covered bonds’ role in APP is to be larger than the 8% he initially expected.

“It could well be that we were wrong and the share will be more around the 15% average seen during 2015,” he added. “This would translate into €3bn of net covered bond purchases per month.”

It has also been suggested the Eurosystem could increase private sector purchases, including covered bonds, next year as it nears ISIN limits on government bonds.

Florian Eichert, head of covered bond and SSA research, Crédit Agricole said that were the ECB to increase its net monthly target from his initial expectation of €2bn of covered bond purchases (not including portfolio reinvestment) to €5bn, and towards taking 50% of primary issuance sometime next year for such a reason, the consequences could be far-reaching.

“The pressure on secondary markets would become rather extreme,” he said. “Even if buying half of every new issue, it would still leave more than €40bn of secondary purchases for next year.”

It could also push spreads to levels that would make it difficult for banks to fund themselves in covered bond primary markets, he added.

However, Eichert said that such a scenario is unlikely, assuming the ECB can continue to source bonds in the public sector programme.

“There’s no need to materially increase private sector buying and as long as they don’t do this, there’s no need for them to become more aggressive on primary purchases,” he said.

“However, if the ISIN limit on the PSPP in not increased, they may get to the point where sourcing govvies and agencies becomes more of an issue,” he added, “but for now they still do have a choice and therefore €2bn in net purchases looks reasonable and the 40% fits into that scenario quite well.”