A Eu40bn covered bond purchase programme launched by the European Central Bank in November may have been started slowly, but market participants said that it has been picking up speed this month in tandem with a surge in new issuance and is operating well – even if peripheral issuers remain absent.

To date, Eu3.382bn of bond purchases have been made under the programme. According to RBS analysts, buying is more than Eu4.5bn behind the level CBPP2 would have reached by now were the Eu40bn to have been spent evenly from launch until the programme’s end this October.

“I think it’s pretty fair that the ECB has been a little bit sidelined,” said Ralf Grossmann, head of covered bond origination at Société Générale. “It was behind in the use of the programme in November and December; that reflected that there was not much in the primary.

“This year they have been active in almost all deals we have seen.”

Jörg Homey, head of covered bond research at DZ Bank, also said it was understandable that the programme needed to catch up on buying.

“If the primary market continues to be busy, then they will have plenty to work with,” he said.

Richard Kemmish, head of covered bond origination at Credit Suisse, said the programme was behind because of its focus on buying in the primary market, but added this was the right tactic.

He added that “limiting the amount of participation on a deal, so as not to create an artificial primary market”, was another positive in the programme. Bankers said market prices were genuine and unaffected by CBPP2.

“I think the French would have got the levels they did without the programme,” said Kemmish of the CBPP2-eligible jurisdiction that has been the busiest this year. “If you look at the deals that have come, they haven’t really relied on the buying programme.

“The CM-CIC deal did pretty well despite not being eligible for the programme.”

Crédit Mutuel-CIC Home Loan SFH priced a Eu1.25bn 12 year issue at 172bp over mid-swaps after the leads built a book of nearly Eu1.4bn. The pricing was in line with 10 year French supply that was able to benefit from CBPP2 buying.

Issuers and syndicate officials have said that central bank buying under CBPP2 has followed demand rather than driven order books on new issues.

Vincent Hoarau, head of covered bond syndicate at Crédit Agricole, said sometimes it takes times for all central banks to coordinate and finalise the amount of their interests on a transaction. He added that it was something that was completely understandable, and that so far they are doing “a great job”.

“Nevertheless, as timing is key in today’s markets,” he added. “I think there is still some room for improvement on that front.”

When CBPP2 was announced, many market participants suggested that, in contrast to the ECB’s first programme in 2009-2010, it should prioritise buying of peripheral covered bonds, but since launch it has been run in a similar manner to CBPP1.

And Grossmann at Société Générale said the market could not pin its hopes on the ECB doing anything proactive to get peripherals like Spain to issue.

“We should not put our hopes to high,” he said. “The ECB doesn’t lead but follows in primary deal bookbuilding. They want the market to operate on its own.”

Hoarau at Crédit Agricole said that the lack of peripheral issuance – with no southern European bank having launched a benchmark this year – was not simply due to a lack of market access for such names, but also reflected a decision on the part of issuers.

“So far issuers from the peripherals have refused to issue at current spreads and lock in margins at historical highs,” said Hoarau at Crédit Agricole. “I think this is the right decision given all the existing liquidity facilities.

“A normalisation of the spread situation versus govvies for tier one names is a prerequisite to primary actions.”

Hoarau said there were no signs of more actively buying peripherals in the secondary market.

“The focus is the primary,” he said. “It would not make a lot of sense to spend much time or liquidity on that front before peripheral sovereigns demonstrate a sustainable stability or improvement.”

However, Kemmish said that if there continues to not be absence of Spanish primary deals then the Eurosystem might have to change tack and buy more in the secondary market.