The CBPP3 portfolio increased €1.731bn last month, the lowest monthly amount of the year, even ignoring a quarter-end downward valuation adjustment, as redemptions swelled to €2.916bn, their highest in four months. The PEPP portfolio meanwhile recorded its largest monthly increase.

The Eurosystem made €1.731bn of net purchases of covered bonds last month, but when a quarter-end amortisation adjustment of €466m is taken into account, the value of CBPP3 holdings rose less, by €1.285bn, from €281.481bn at the end of May to €282.766bn at the end of June.

The €1.731bn increase is just less than half of an €3.785bn increase in May and the lowest since December 2019. This sharp change reflects a sharp rise in the volume of redemptions, from €371m in May to €2.916bn in June – the second highest month for redemptions since purchases resumed under the programme in November, beaten only by January, when €3.660bn of CBPP3 holdings matured.

CBPP3’s 4.5% share of the June APP increase compares with an average of 8% in the period from March to June, and 16% in January and February, while average net monthly CBPP3 purchases have since March fallen from around €3.5bn to €3.3bn. Maureen Schuller, head of financials research, ING, contrasted this fall with the other parts of APP, noting that PSPP purchases have on average been €18bn higher per month versus the first two months of the year, CSPP purchases €1.2bn higher, and ABSPP purchases €0.6bn higher.

“This, in our view, confirms, that the CBPP3 may even be the programme least supported by the ECB’s €120bn envelope,” she said.

Given that redemptions are estimated by the ECB to increase by an estimated €685m to €3.6bn in July, and primary market activity is expected to fall, Schuller expects lower covered bonds purchases under CBPP3 to persist.

Joost Beaumont, senior fixed income strategist, ABN Amro, said the prevailing pattern is likely to remain unchanged for the remainder of the year.

“The Eurosystem has to reinvest €21bn in H2,” he said, “while we expect new supply of CBPP3-eligible bonds to remain modest (roughly €20bn). This should continue to support spreads.”

PEPP net purchases in June were €120.321bn, up €4.466bn from €115.855bn in May and the highest monthly amount since purchases began under the programme in March. Net APP purchases were €38.794bn, up from €38.183bn in May, bringing aggregate net Eurosystem purchases to €159.295bn.

According to data released by the ECB relating to settled and outstanding purchases under its various programmes on Monday, the CBPP3 portfolio grew €874m in the week to last Friday, €126m more than the €748m increase of the previous week. Figures released yesterday (Wednesday) show that no CBPP3 holdings matured last week, versus around €500m the previous week. When the quarter-end amortisation adjustment of €466m is taken into account, gross CBPP3 purchases totalled €1.320bn, up from €1.248bn the previous week.