Gross CBPP3 purchases were last week at their highest level since April, signalling a shift towards pre-summer levels as the primary market reopened. A report that the ECB is reviewing its PEPP programme and could use some of its modalities for APP have meanwhile been played down.

According to data released by the European Central Bank on Monday relating to settled and outstanding purchases under its various programmes, the CBPP3 portfolio grew €693m in the week to last Friday, versus a €39m decrease the previous week. That contraction in the portfolio was on the back of around €1.3bn of redemptions, whereas there were €0.8bn last week.

Moreover, last week some €2bn of eligible primary supply settled, versus €1.1bn the week before, as euro benchmark issuance picked up after the summer lull.

Gross purchases of €1.493bn are the highest weekly gross purchases since the week ending 17 April. They are €232m higher than the €1.261bn of gross purchases the previous week, which were nevertheless the highest since the pre-summer week ending 3 July.

“The central bank has been rather active last week,” said Joost Beaumont, senior fixed income strategist, ABN Amro, “in line with the number of the week before last.”

This week €4.5bn of eligible primary supply will settle, making it the busiest week for primary settlements since mid-January, and an analyst said next week’s CBPP3 update could reveal still higher purchases.

“They could be somewhat more because of the volume of new issuance traffic we saw last week,” he said.

Aggregate gross APP and PEPP purchases of €30.451bn were down marginally, by €77m, from €30.528bn the previous week, which marked the highest weekly gross purchases since the week ending 17 July.

The APP portfolio grew €8.661bn in the week to last Friday, €884m higher than a €7.77bn increase the previous week. Given redemptions were around €5bn, gross purchases were around €13.661bn – the highest since the week ending 10 July.

Last week the PEPP portfolio grew €16.090bn, €1.739bn more than a €14.351bn increase the previous week, and the highest since the end of July. Given around €0.7bn of redemptions, gross purchases were €16.970bn, €461m less than the €17.251bn of the previous week.

On Sunday the Financial Times reported that the ECB is launching a “sweeping” review of its asset purchase programmes, including the longevity of PEPP, its impact and whether or not its flexibility in regard to issuer limits could be carried over to APP.

However, in an interview conducted on Monday, ECB board member Yves Mersch said he was not aware of such a development, even if the central bank continually monitors all developments. Some market participants also understood further comments from him to imply that transferring PEPP’s flexibility to APP would face legal challenges in certain jurisdictions, and that its emergency powers should not remain permanent.

“If you now say we have emergency instruments which do not need to respect these constraints,” he said, “and we use them now also in our normal procedures, I do not know what the same jurisdictions would say in their future assessment.”

ABN Amro analysts expect a further €500bn to be added to PEPP by the end of the year, with the programme extended to run throughout 2021.

“To us it makes sense to allow the PEPP to do the heavy lifting in terms of monetary stimulus as long as possible,” they said. “This can easily be justified because the economic shock from Covid-19 will take years to recover from both in terms of economic growth and in terms of inflation.”

Any review could add more transparency to PEPP, according to ING analysts, as the central bank currently only releases breakdowns by asset class on a bi-monthly basis.

Photo: Yves Mersch; Credit: ECB/Flickr