Net CBPP3 purchases increased last month despite buying being paused for the holiday break and an absence of new issues, as redemptions fell to their lowest level in more than four years.

The Eurosystem made a net €1.529bn of covered bond purchases in December, although when a quarter-end amortisation adjustment of €441m is taken into account, the value of CBPP3 holdings rose less, by €1.088bn, from €286.458bn at the end of November to €287.545bn at the end of December.

The €1.088bn increase is €442m more than a €646m increase in November and the highest since September – the portfolio shrank in October – despite purchases being paused from 21 December to 1 January in anticipation of significantly lower market liquidity. The rise in net purchases comes on the back of a sharp decline in redemptions, from €4.703bn in November to €302m in December, the lowest monthly amount since April 2016.

Given the €1.088bn of net purchases and €441m quarter-end amortisation adjustment, gross purchases were €1.831bn, €3.518bn less than the €5.349bn of November. No CBPP3-eligible supply settled in December.

According to DZ analyst Alex Constanze Steinmann, the average monthly gross and net CBPP3 purchases in 2020 were some €5.2bn and €2.1bn, respectively.

“Since the beginning of this week, the ECB has resumed its CBPP3 purchases,” he noted. “For the time being, we expect the central bank to buy covered bonds at the same pace as last year.”

A €500m Aareal Bank transaction launched yesterday (Tuesday) is so far the only CBPP3-eligible supply due to settle next week – central banks and official institutions were allocated 29% (€145m).