BofAMerrill analysts think the ECB could be a lot more aggressive in the securitization-purchasing program it launched last November.
They dispute the pervasive notion that a limited market supply of deals explains why the European Central Bank has been timid, particularly compared with a program for snatching up covered bonds begun in October.
The ECB has bought about 4.89 billion ($5.25 billion) worth of securitizations as of April 6 in its asset-backed securities purchase programme (ABSPP), versus 64.7 billion in CBPP.
The analysts at Bank of America Merrill Lynch crunched data on new issuance and what’s available for purchase through Bids Wanted in Competition (BWICs) and they found that only 16% of securitizations ready to be snapped up have been bought by the ECB.
The corresponding figure for covered bonds is 22%.
This might even be undercounting what the ECB can get its hands on. In the analysts’ view it’s possible the monetary authority is already buying deals that banks have retained for ECB funding and which therefore wouldn’t be captured by secondary market data.
In calculating available supply for ECB purchase, the analysts factored in the ECB’s self-imposed limit of purchasing no more than 70% of newly issued securitizations, a rule designed to encourage the participation of other investors.
While the ECB could do more, the analysts acknowledged that primary securitization volumes in Europe have been low. Issuance has totaled 10.7 billion so far this year, according to BofAMerrill. A large chunk of that — about 6.3 billion — has come out of the U.K.
The analysts suggest that faced with paltry issuance, the ECB should focus on BWICs. Volumes from these auctions tend to fluctuate sharply from week to week, so the bank should be "flexible" as well as "aggressive" the analysts said.
They added that other possible factors — a bid that’s too conservative, an approval process that’s too complex and a geographic focus that’s too narrow — could be stifling the ECB’s purchase volumes as well.
The market consensus is that ECB purchases have stuck mostly to German and Dutch deals.