ECB slows bond purchases ahead of ABS scheme

The ECB slowed purchases of covered bonds as officials prepare to expand their asset-buying programme to include other securities.

The outstanding amount of covered bonds settled under the Frankfurt-based institution’s programme rose by €2.629bn last week to €7.408bn. The ECB settled €3.075bn in the second week of purchases and €1.704bn in the first week.

The plan, which is set to broaden to asset-backed securities (ABS) from this month, is part of a stimulus package that includes targeted bank loans and record-low interest rates. With inflation below the ECB’s goal and the economy struggling to expand, ECB president Mario Draghi reaffirmed last week that he expects the ECB’s balance sheet to expand by as much as €1tn.

The “new deals confirmed the shift in the covered-bond investor base since the start of its third covered-bond purchases programne with especially reduced activity from asset managers in core names,” said Anne Caris, a London-based analyst at Bank of America.

“No matter its intentions, the ECB is crowding out investors, which could have material negative consequences in the future.”

Draghi said last week the Governing Council remains unanimous in its commitment to adopt more unconventional policy should the outlook for inflation deteriorate further. He said work was under way to ensure the “timely preparation” of measures.