The CBPP3 portfolio contracted some €637m last week – the most since the programme was restarted in November 2019 – on the back of high redemptions and an absence of primary market activity, while aggregate gross Eurosystem purchases were at their lowest level since PEPP’s launch.

Settled and outstanding purchases under the European Central Bank’s third covered bond purchase programme (CBPP3) decreased €637m, as the portfolio shrank from €285.219bn to €284.582bn in the week to last Friday. Redemptions were €1.4bn last week, their third highest level this year. The contraction of the portfolio is the first since the week ending 19 June, when it shrank €560m and redemptions were around €1.5bn.

Gross purchases came in at €763m, down €12m from €775m the previous week. This is the lowest weekly gross purchases since the week ending 1 May and €359m below the €1.122bn weekly average from the time PEPP was launched in late March until the week before last.

For the second consecutive week, no CBPP3-eligible supply settled amid a seasonal lull in primary market activity. The last eligible euro benchmark, a €500m eight year green mortgage Pfandbrief from Berlin Hyp, was launched just over four weeks ago, and issuance is expected to remain subdued until at least mid-August.

The ECB is due to release its second bi-monthly breakdown of PEPP purchases by asset class shortly, detailing buying in June and July. The first breakdown, released at the beginning of June, relating to purchases from the programme’s launch until the end of May, showed that just 0.9% (€2.099bn) of overall net PEPP purchases were of covered bonds.

An analyst told The CBR he does not expect there to have been any major deviation in the allocation of the programme to covered bonds in June and July.

“From the first numbers we saw,” he said, “it seems like PEPP is simply not there a lot for covered bonds.

“If there is €4bn in covered bonds under PEPP, I would be very surprised,” he added, “because on top of the normal APP buying, this would simply be too much given there has been little issuance.”

The APP portfolio grew €8.352bn last week, with redemptions of around €2.3bn and gross purchases of around €10.652bn, while PEPP grew €18.831bn, with redemptions of €500m and gross purchases of €19.331bn.

The week’s gross PEPP purchases are the lowest since the programme was launched, and for the fourth consecutive week, below the weekly average, which until the week before last was €25.666bn.

“[Net] PEPP purchases of just below €19bn remain on the low side,” said ING analysts, “but a summer slowdown is not unusual, especially as benign spread developments in sovereigns do not call for larger interventions at this juncture.”

Aggregate gross APP and PEPP purchases of €29.983bn for the week are also the lowest since PEPP purchases began in March.