Determining the effectiveness of the Eurosystem's Covered Bond Purchase Programs on secondary markets

We examine the effectiveness of the Eurosystem's Covered Bond Purchase Programs 1-3 (CBPP1-3) in terms of the spread tightening of Euro-denominated covered bonds against those issued by British banks, which serve as the control group. The study uses weekly data from the beginning of 2006 to the middle of 2015. It makes use of an unobserved components model (structural time series) framework. The announcement effects identified by prior studies for CBPP1 are confirmed. We find them to last five to seven weeks. The announcement effects of CBPP2 and CBPP3 differ from those of CBPP1. Their implementation tends to widen covered bond yields, contrary to the Eurosystem's objectives, but in line with liquidity expectations. Additionally, we find positive market reactions to unexpected changes in the programs' eligibility criteria.