The Eurosystem kicked off its CBPP3 restart in size today (Wednesday), putting in orders at the upper end of expectations for 40% of covered bonds issued by DKB and BPCE, with the 10 and seven year trades attracting EUR1.4bn and EUR2.4bn of orders, respectively.

Market participants had been eagerly awaiting the first indications of what share of new issues the Eurosystem would buy under the €20bn per month restart of asset purchase programme (APP) net purchases, particularly since the ECB confirmed that purchases settling from 1 November would be allowed, with today flagged as the first day of trades.

The first signs came this morning, with Germany’s Deutsche Kreditbank launching a €500m no-grow 10 year “blue” social public sector Pfandbrief and France’s BPCE SFH issuing a seven year benchmark.

According to a banker at one of DKB’s leads, the Bundesbank put in an order for 40% of the €500m no-grow Pfandbrief (€200m) – eight times the 5% level the Eurosystem has typically been buying in recent months for the reinvestment of purchase programme redemptions.

The large order helped the issuer to a €1.4bn order book in just over an hour and 10 minutes. Leads ABN Amro, BayernLB, DZ, Natixis and UniCredit went out with initial guidance of the 7bp over mid-swaps area and after 25 minutes reported books above €500m. After just over three-quarters of an hour, guidance was revised to the 5bp area on the back of books above €1bn, and the pricing was ultimately set at 3bp on the back of books above €1.4bn.

“It’s fair to say that there hasn’t been a CBPP3-eligible trade for the past couple of weeks for the obvious reason that everyone was waiting for the ECB to show its hand,” said the banker, “and the book here was dramatically oversubscribed.

“That said, I think this DKB trade would have gone much the same without the Eurosystem,” he added, “as it has a ‘blue’ ESG tag so appeals to those buying specifically for such criteria.”

A banker at another of DKB’s leads said demand away from the Eurosystem had been boosted by the recent back-up in yields as well as the “blue” element.

“Not only the relaunch of CBPP3, but yields being in positive territory again bodes pretty well for covered bond issuance,” he said. “These two factors explain why primary markets feel wide open at the moment.”

BPCE SFH leads Danske, HSBC, JP Morgan, LBBW, Natixis, NordLB and UniCredit built a book of over €2bn for the French 10 year euro benchmark in an hour and three-quarters, revising guidance from the 9bp over area to 6bp+/-1bp, will price in range. The deal was ultimately sized at €1.25bn and priced at 5bp on the back of a €2.4bn book.

They had reported books above €1bn after around 55 minutes, with the order book then doubling in the next 50 minutes, and a banker said that whereas the Bundesbank had put in its order for DKB’s no-grow deal at the start of the process, the Banque de France had waited for more clarity on the size of BPCE’s benchmark before putting in its order.

Syndicate bankers and analysts had forecast the Eurosystem taking anything from 20% to 50% of new issues once CBPP3 was restarted, with 50% having been the highest previously taken and 10% the lowest, and few market participants expecting a figure towards the top end of that range. The Eurosystem’s previous involvement in the covered bond market has been criticised as too market-distorting and a syndicate banker today described the 40% level as “ludicrous”.

Another banker involved in one of today’s trades said he was surprised by the large tickets.

“In its heyday, it was 50%, and yesterday it was 5%,” he said, “and I did not expect such a large share as the monthly number [€20bn] is not so large.”

However, he said that BPCE’s ultimate pricing was fair in spite of the Eurosystem involvement and that traditional covered bond investors had participated in their usual numbers.

The Eurosystem has previously maintained the same order size through periods when its monthly APP amounts have remained the same, but the banker said he is not so sure that will be the case in this instance, and that the Eurosystem might adjust its strategy depending on how other parts of APP play out and issuance volumes, particularly around year-end and the New Year.

Another syndicate banker said that if the high Eurosystem share persists, it will be supportive of the covered bond market alongside large forthcoming portfolio redemptions and potentially front-loading of purchases ahead of a suspension of the programme for a fortnight at year-end.

“If their buying in the secondary market picks up significantly,” he added, “that might have a positive impact on CBPP3-eligible paper, which I then see definitely tightening by a few basis points for the remainder of this year.”