The Eurosystem last week registered its highest level of secondary covered bond purchases since June 2016, with the buying coming amid a jump in overall asset purchase programme activity analysts said reflected the ECB’s initial €120bn APP boost and offered a foretaste of greater PEPP buying.

The latest week’s figures take in almost a full week of Eurosystem activity in the wake of the ECB’s announcement on 12 March of an additional €120bn of APP purchases until year-end. However, they do not include any activity under the €750bn “envelope” of the Pandemic Emergency Purchase Programme (PEPP) announced on Thursday.

Settled and outstanding CBPP3 holdings increased €1.301bn, from €271.840bn to €273.141bn, in the week to Friday, the biggest increase since the third week of January, which was the busiest week of the year in the primary market. No eligible new issuance settled last week and, according to Maureen Schuller, head of financials research at ING, the €1.301bn increase is the highest in a week with no primary settlements since 2015.

Some €200m of CBPP3 holdings matured last week, meaning gross purchases were around €1.501bn (the ECB only gives weekly redemption figures to the nearest €100m). Given the absence of primary settlements, the Eurosystem bought around €300m per day in the secondary market, which is the biggest average daily amount since a week in June 2016, and compares with an average daily rate of €172m in 2020 before last week.

“This should be reassuring under current volatile market circumstances,” said Schuller, “particularly for those covered bonds eligible under the programme.”

The overall net APP increase was €17.381bn, the highest weekly number since December 2017, and compares with a weekly average of around €5.5bn previously in 2020.

“The increase does not yet capture any purchases under the €750bn PEPP, but probably does include purchases within the additional QE envelope of €120bn,” said Joost Beaumont, senior fixed income strategist, ABN Amro. “As such, weekly net purchases are likely to rise strongly in the coming weeks as the central bank needs to buy on average roughly €26bn of net assets per week to reach its 2020 QE target.”

The net increase in CBPP3 constituted 7.5% of the overall net APP increase, with analysts noting that the public sector purchase programme came to the fore – with a 75.0% share – despite the ECB highlighting a “strong contribution” from the private sector programmes when announcing the initial €120bn envelope.

“Last week’s strong buying under the PSPP, in our view, reflects the reality that the APP’s additional crisis support for the private sector cannot go without significant support for the sovereign sector too,” said Schuller at ING. “Particularly with current exceptional circumstances also forcing governments into taking extraordinary measures with a certain impact on their debt and deficit levels.

“The ECB’s PEPP announcements last week, including the indication that it could revise its self-imposed limits if these would hamper action, was already a strong signal into this direction.”