Gross CBPP3 purchases hit their lowest ever level in the final week of April, coming in below €100m, increasing speculation that the Eurosystem is booking covered bond purchases under PEPP, while a German constitutional court ruling has raised further questions over its direction.

According to data released by the European Central Bank last Monday (4 May) relating to purchases settled and outstanding as of 1 May, the CBPP3 portfolio shrank €231m. Redemptions in the week totalled €0.3bn, according to figures released last Tuesday (which are given to the nearest €100m), meaning gross purchases were around €69m, and at most around €119m and as low as €19m taking into account the possible range of redemptions that could be rounded to €300m.

€69m is the lowest amount of gross purchases for any week since CBPP3 was launched in 2014, with the exception of weeks taking in seasonal suspensions of the programme, and well below the average amount of covered bonds the Eurosystem has bought per single day.

One eligible euro benchmark settled during the week, a €1.25bn seven year for Caisse de Refinancement de l’Habitat. According to distribution figures from the leads, some 21% was placed with central banks and official institutions. This €262.5m allocation is well above the range of possible Eurosystem gross purchases (€19m-€119m), which are equivalent to 1.5% to 9.5%, with €69m being equivalent to 5.5% of the issue. Two covered bond analysts spoken to by The CBR had estimated the Eurosystem bought €150m-€200m of CRH’s issue – the Eurosystem is reported to be still generally putting in orders for around 40% of new issues, although one noted that, given CRH’s €4.5bn order book, a Eurosystem allocation of below 10% would not be beyond the realms of possibility.

The size of the CRH ticket would be even lower if the Eurosystem made any secondary market purchases from 23 to 28 April, and indeed some market participants have said the Eurosystem remained active and had even increased its buying. On 30 April, BayernLB analysts, for example, said the ECB seems to be “very active” in the market, buying more covered bonds, with traders reporting a “visible rise” in Eurosystem volumes in the secondary markets.

Analysts described the record low number as “odd” and “puzzling”, but said the Eurosystem allocating covered bonds purchases to PEPP, rather than under CBPP3 within APP, is the most likely explanation.

“It can be assumed that a significant proportion of covered bond purchases are currently being carried out within the PEPP,” said the BayernLB analysts.

Another analyst said the numbers suggest the Eurosystem could be booking both primary and secondary covered bond purchase under PEPP.

“For the ECB to buy absolutely nothing in secondary markets would be odd even at month-end,” he said, “and the PEPP works with the same rules as the APP, so they, too, can buy covered bonds in primary markets.”

The record low week rounded off a month in which CBPP3 “barely benefited” from the additional €120bn envelope for APP, in contrast to overall ECB QE hitting a record level, according to Maureen Schuller, head of financials research at ING. The €3.582bn April net increase of CBPP3 was between the €3.7bn of January and €3.3bn of February – before PEPP began – while April’s aggregate net increase in APP and PEPP was the largest ever under the ECB’s purchase programmes, at some €103bn.

Although PEPP buying was cited as the reason for the low CBPP3 numbers by some analysts, Jörg Homey, covered bond analyst at DZ Bank, said the current focus on bonds issued by public sector borrowers under APP and the low primary market activity in the covered bond market are likely to be the main reasons.

Some light should be shed on the breakdown of PEPP buying when the ECB begins more granular reporting on the programme next month.

“The weekly data underlines the fact that more details on the PEPP purchases will be welcome,” said Joost Beaumont, senior fixed income strategist, ABN Amro.

But another said it remains to be seen how helpful the data – to be released every two months – will prove to be.

“If the reporting is not detailed enough to break down purchases into the various asset classes as well as primary/secondary, we might never get a clear picture,” he said. “Even syndicates would probably struggle to identify whether the ECB buys for PEPP or CBPP3 – I guess they would just come in with one order for both and then reallocate the bonds internally.”

According to figures released this (Monday) afternoon, the CBPP3 portfolio grew €1.024bn, from €277.696bn to €278.720bn, in the week to last Friday – gross purchases in the period will not be clear until the ECB releases redemption figures tomorrow (Tuesday) afternoon.

The outlook for APP and PEPP was meanwhile muddied by an unprecedented ruling by Germany’s constitutional court last Tuesday, whereby the public sector purchase programme (PSPP) was deemed to represent the ECB acting beyond its authority.

Although the ruling raised questions over the Bundesbank’s ability to participate in PSPP and the ECB’s wider powers, market reaction was muted, with limited movement in government bonds.

Bernd Volk, head of covered bond research at Deutsche Bank – who gave expert testimony to the court – said that in spite of its historic ruling, the court had offered a “practical solution” under which the Bundesbank can continue to participate in PSPP.

Florian Eichert, head of covered bond and SSA research at Crédit Agricole, nevertheless said the ruling could result in higher CBPP3 buying, with the Eurosystem putting less emphasis on PSPP.

“After the German constitutional court decision, our ECB strategist believes the ECB will find a way to overcome this new obstacle, but it could weaken the ECB’s power and agility” he said. “In response, there is a risk it could focus more on the areas not impacted by the ruling.”