Covered Bond & RMBS Comment – Eurosystem back in the market

by: Joost Beaumont

  • Eurosystem settled EUR 1.2bn of gross covered bond purchases last week
  • It stepped up its presence in the secondary market…
  • …reflecting that there is hardly any supply in the primary market
  • German and Nordic paper remains in demand

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Covered-Bond-RMBS-Comment-12-April.pdf (201 KB)

Eurosystem increased purchases in secondary market

The weekly figures on CBPP3 showed that the Eurosystem stepped up its presence in the market, suggesting that the slowdown in purchases in the week before last was only a temporary blip (for now). The central bank settled EUR 1.2bn of covered bond purchases on a gross basis, reinvesting around EUR 0.9bn. As a result, the outstanding amount increased by EUR 300mn to EUR 214.7bn. The rise mainly stemmed from purchases in the secondary market, as the Eurosystem bought only a small amount in the primary market (one CBPP3 eligible deal settled last week). Overall, we estimate that it bought on average EUR 222mn a day in the secondary market, which is the highest amount since the first week of February.

The increase in secondary market purchases mainly reflects the low supply of CBPP3 eligible deals in the primary market (actually none since the end of March), which makes the Eurosystem more dependent on the secondary market. Last week, the central bank was again able to increase net purchases by a small amount, but we would not be surprised if the Eurosystem will be unable to increase net covered bond purchases sometime in the coming weeks. This would be mainly due to the lack of supply in the primary market as well as that it might become harder to find the paper in the secondary market. Nevertheless, we expect the central bank to remain a dominant market player, keeping spreads compressed.

Primary market makes slow start to April

Activity in the primary market as well as secondary market remained limited. No new deals were launched or announced, with the primary market still waiting for the 5y USD deal of Kookmin Bank. Meanwhile, we saw still good demand for German covered bonds as well as Nordic names in the secondary market. Spreads held up well yesterday.

Other news

* The EBA agreed with a waiver of CRR article 129(1) (c)for German and Polish covered bonds, given the significant concentration problem. Please read more here.


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