An increase to PEPP, a further easing of TLTRO conditions, and an expansion of eligible assets – potentially including CPTs – are among measures analysts believe the ECB could adopt tomorrow (Thursday) to step up its crisis response, as its purchases progressed steadily.

According to data released on Monday by the European Central Bank relating to settled and outstanding purchases under its various programmes, the Pandemic Emergency Purchase Programme (PEPP) grew €26.045bn in the week to last Friday (24 April), €6.079bn more than a €19.966bn increase the previous week. Gross APP purchases were €15.687bn, taking into account redemption figures released yesterday (Tuesday) afternoon, bringing aggregate Eurosystem purchases across the two programmes to €41.732bn, up €5.917bn from €36.013bn the previous week.

Last week’s €41.732bn is the highest since the first week PEPP, when the Eurosystem bought €48.513bn across the two programmes. Like the first week, the past week reflects a full five days of settlements, whereas figures for the two interim weeks (to 10 and 17 April) reflected only four days of settlements due to Target2 holidays on 10 and 13 April. As a result, daily average gross purchases, at around €8.346bn, were down 7% from €9.003bn the week before, and 14% from €9.706bn in the first week of PEPP.

Last week’s net APP increase of €9.487bn was up significantly from €547m the previous week, although PEPP redemptions fell from €15.5bn to €6.2bn, meaning gross APP purchases were down €360m, from €16.047bn to €15.687bn.

Gross CBPP3 purchases were down €725m, from €1.715bn to €990m, while CBPP3 redemptions were up around €0.8bn, from €0.2bn to €1bn, meaning the CBPP3 portfolio shrank for the first time since the week ending 31 January, by around €10m.

No eligible euro benchmarks settled last week, compared with €3bn the previous week.

Maureen Schuller, head of financials research, ING, said that although it is possible that the lack of primary settlements last week could explain the drop in gross purchases, there have been other weeks with similarly reduced primary settlements when the Eurosystem was capable of buying more, indicating that purchases may have been made under PEPP.

“The difficulty is that we don’t have the distribution across programmes for the PEPP purchases,” she said. “If you look at the APP pattern, it looks as if the ECB is trying to keep CBPP3 purchases around the range of €1bn-€1.5bn, so what they’ve done on top of this with PEPP, I have no clue.”

In a month of Eurosystem activity since PEPP was launched, CBPP3 gross weekly purchases have ranged from €990m to €1.792bn, averaging around €1.447bn. An analyst said it is possible that next week the ECB could provide more details on the breakdown of PEPP when it publishes the monthly details of its purchasing programmes.

Bernd Volk, strategist, Deutsche Bank, said he would be surprised if more details of the PEPP were released at the month end.

“It’s bad for investors and analysts, but it is working quite well for the ECB,” he said, “as you can never be certain what they are buying, so for me it demonstrates that this PEPP is particularly powerful politically.”

Some analysts expect the central bank to announce extensions to its crisis response measures after its governing council meeting tomorrow, including, but not limited to, an increase in PEPP purchases.

Volk said he predominantly expects the ECB to announce a further easing of TLTRO III conditions, with the potential for it to also signal even more asset purchases.

“Given that the ‘state of emergency’ argument used regarding PEPP provides leeway, increasing PEPP seems easier for the ECB than introducing OMT from a formal legal perspective,” he said.

“It’s pretty clear there’s more to come,” he added, “and that TLTRO easing would be even more negative for covered bond supply.”

He said he would be surprised if PEPP were increased this early into its implementation, as it is already well-established that increasing it is within the ECB’s capabilities.

“They just need to convince the market that they can do more,” he said, “so if they ease the TLTRO, this would support the improved sentiment we have seen already.”

Schuller said ING does not expect changes to be made to the size of the PEPP programme this week, but rather in June when there are new economic projections. There are some “low-hanging fruit” adjustments the ECB could already make to the scope of its asset purchases, she said, including buying conditional pass-through (CPT) covered bonds again under CBPP3, as well as accepting “fallen angels” in its CSPP criteria.

The ECB has since the beginning of 2019 excluded CPTs from its purchases, and also treats them less favourably in its collateral framework.

Schuller said the merits of CPT covered bonds could come to the fore in a period of crisis, citing their rating stability, higher achievable ratings (helping issuers maintain own-use access to ECB repo), and collateral efficiency for issuers with smaller balance sheets.

“Against this backdrop,” she added, “the requirements from the covered bond Directive (to the extent met by programme documentation) could give the ECB some comfort to be less penalising towards CPT covered bonds given the exceptional circumstances faced by banks in general.”