Pfandbrief banks criticize revival of the ECB buying programme for covered bonds

The European Central Bank (ECB) announced on September 12 that it will be relaunching the purchase programme for covered bonds on November 1, 2019.

The Pfandbrief banks take a critical view of the ECB’s return as net buyer on the covered bond market – that is, above and beyond the ongoing reinvestment of the proceeds of maturing bonds. With a portfolio of just under €270 billion, the ECB is already the biggest investor on the covered bond market.

“At first glance, the issuers benefit will from the extremely favorable refinancing conditions that the revival of the purchase programme will bring. However, the new purchase programme now threatens, above all, to further entrench the already totally distorted yield environment throughout the covered bond market. This creates the imminent danger that a functioning market may sustain further damage, without any need, due to the central bank’s measures,” said Jens Tolckmitt, Chief Executive of the vdp.

The resumption of net purchases also needs to be seen in the light of the ECB’s new targeted longer-term refinancing operations (LTRTO III). It is to be expected that the wider demand as a result of the purchases will encounter a correspondingly reduced supply of covered bonds.

“Hopes for a gradual normalization in the markets and the return to a stronger role for traditional Pfandbrief investors will be scaled back even further because of this,” Jens Tolckmitt continued.


The European Central Bank had decided that net purchases under its third covered bond purchase programme (CBPP3) should end with effect from the beginning of 2019. At the turn of the year 2018/2019 the ECB’s CBPP3 portfolio alone contained covered bonds with a volume totaling more than €260 billion.

The risk premia for covered bonds and Pfandbriefe rose in the second half of 2018 on the back of this decision, prompting the return of investors who had previously been crowded out of the market.

In consequence of geopolitical risks, which gave rise to expectations that the ECB would resort to further geopolitical measures, yields again came under pressure, particularly from the end of June 2019.