The Eurosystem maintained CBPP3 growth above €1bn for the third consecutive week last week, when redemptions and eligible new issuance both fell. The increases comes after muted CBPP3 growth in January and with covered bonds’ role in PEPP remaining negligible.

According to data released by the European Central Bank on Monday relating to settled and outstanding purchases under its various programmes, the CBPP3 portfolio increased €1.042bn in the first week of February, from €287.619bn to €288.661bn.

The €1.042bn weekly increase is the highest since mid-November and coincides with a fall in the volume of CBP33 redemptions, which at around €100m were at their lowest level this year and sharply down on around €1.7bn the previous week and €2.8bn the week before that.

Gross purchases last week of €1.142bn were €769m lower than the €1.911bn of the previous week, which were the highest since September. However, since the week ending 15 January, weekly gross CBPP3 purchases have exceeded €1bn.

Alex Constanze Steinmann, analyst, DZ, said the figures demonstrate CBPP3 is dependent on primary market activity, which has slowed partly due to the reporting season for banks.

“Last week only two CBPP3-eligible new issues with a combined volume of €1.75bn were settled,” he said. “According to our estimate, the ECB probably purchased a volume of about €340m of these new issues. In the two weeks before, the ECB bought more than €550m per week on the primary market.”

January sub-par

The CBPP3 grew €74m in January, the lowest monthly increase since October, when it shrank, and equivalent to just 2% of January 2020’s net increase. The minimal growth was largely due to €5.148bn of redemptions in January, the second highest monthly redemptions registered for the programme, beaten only by October’s €7.163bn.

Bernd Volk, head of covered bond research at Deutsche Bank, noted that over this month and next CBPP3 redemptions decline significantly, to €1.842bn in February and €2.818bn in March.

“However, we expect supply to remain limited and therefore spreads to remain supported even in case of low net CBPP3 purchases,” he said.

The overall asset purchase programme (APP) increased a net €17.932bn in January, with CBPP3 contributing less than 1% to the growth – the public sector purchase programme (PSPP) grew €13.655bn and the corporate sector purchase programme (CSPP) €4.924bn, while ABS purchase programme holdings fell €721m.

The net APP purchases of €17.932bn are the lowest monthly increase since December 2019. Bank of America analysts highlighted that the increase dipped below the ECB’s target of €20bn a month.

“This contrasts with prior years when January purchases met/exceeded the target,” they said.

Net PEPP purchases of €53.046bn in January are the lowest for a full month since the programme was launched in March 2020, while aggregate net Eurosystem purchases of €70.978bn are also the lowest monthly amount since PEPP began.

PEPP: One step forward, two steps back

Covered bonds were purchased under the Pandemic Emergency Purchase Programme for the first time since the June-July period, according to bi-monthly data relating to December and January released by the ECB last week. However, covered bond purchases in December and January were limited to €2m and, when a quarter-end amortisation adjustment of €5m is taken into account, the value of covered bonds holdings in PEPP decreased for the first time in a one of the ECB’s bi-monthly reporting periods, by €3m.

The Bank of America analysts said the PEPP breakdown continues to demonstrate the programme is focused on public sector securities.

“The ECB has made it clear that private assets would not enjoy a boost from the PEPP under normal market conditions,” they said.