The insidious impact of CBPP3

With covered bond primary issuance unlikely to grow next year and the ECB expected to prevaricate over the merits of full blown sovereign quantitative easing, covered bonds will be its main vehicle for expanding the balance sheet. This week the balance sheet shrank, so it had better step up buying if it wants to hit the requisite €1tr expansion needed to reach March 2012’s levels. That will surely mean its ownership of covered bonds must rise.