The Eurosystem all but maintained its heavy pace of buying across APP and PEPP in the second week of the latter, with aggregate average daily gross purchases dropping only 4%, although covered bond market participants remained in the dark as to the exact extent of buying of the asset class.

According to data released by the European Central Bank on Tuesday relating to settled and outstanding purchases under its various programmes, the PEPP portfolio grew €20.555bn in the week to last Friday (10 April), €9.598bn less than the €30.153bn increase for the previous week. Gross APP purchases for the week were €16.750bn, taking into account redemption figures released yesterday (Wednesday) afternoon, bringing aggregate Eurosystem purchases to €37.305bn.

Although these were down some 23% from €48.531bn of gross purchases for the previous week, the daily rate of buying – around €9.3bn versus €9.7bn – was down only around 4% because the week’s figures reflect only four days of settlements, rather than the five of the previous week and most weeks. Friday was a Eurosystem holiday, so any purchases that would normally have settled then (such as secondary buying conducted on Wednesday) will be counted in the settlements for this week rather than last – although the figures to be released next week will also be affected by the Friday and Monday public holidays.

“Both Good Friday and Easter Monday were Target holidays, which means most people will find it difficult to process large-value payments in the euro area on those days, including the settlement of securities transactions,” an ECB spokesperson told The CBR, when asked to confirm the lack of settlements on Friday.

Gross purchases under CBPP3 for the week were around €1.289bn, €511m less than the previous week, but net purchases, at €797m, were higher, with only €100m of redemptions last week, versus €1bn the previous week on top of a €400m amortisation adjustment.

CBPP3’s share of the net APP increase was 7.317%, compared with an average of around 11% since the programme was rebooted in November 2019. Joost Beaumont, senior fixed income strategist, ABN Amro, said he expects the figure to be around 10% on average for the rest of 2020, and 5% for PEPP purchases, implying gross covered bond purchases of roughly €108bn in 2020, also taking into account redemptions.

“This would exceed the total supply of euro benchmarks covered bonds from euro area issuers in our forecasts (which is even likely to be reduced as issuers make use of the TLTRO III),” he said. “Therefore, we expect that the Eurosystem will be a big support for covered bond spreads.”

However, Deutsche Bank strategist Bernd Volk said there is little evidence to suggest that any significant volume of covered bonds is being purchased under PEPP, given that the Eurosystem’s presence in the market is not differing hugely than before the launch of the €750bn programme three weeks ago. The ECB does not release a breakdown of PEPP buying by asset class.

“I would be surprised if they bought nothing,” he said, “but of course, we do not know and this is just speculation – this is the surreal situation we are in at the moment. It would be strange, but it is possible.”

Photo copyright: Martin Lamberts/ECB