Covered bond activity was on hold today (Monday) as volatile market conditions kept borrowers in wait-and-see mode. Italian banks faced further hurdles to issuance when Moody’s placed Italy’s Aa2 rating on review for possible downgrade on Friday.

“It’s extremely quiet, with all eyes on Athens,” said a covered bond banker.

Progress on the Greek debt crisis has yet to be made, with euro-zone finance ministers having decided to make disbursement of another loan tranche contingent upon the country’s parliament approving new austerity measures. A vote of confidence is scheduled for tomorrow (Tuesday).

“A decision is expected out of Greece within the next couple days,” said the banker, “so hopefully then we can go back to normal market activity.

“The Greece topic is the stopper for the market at the moment.”

Market participants predicted a possible window for issuance on Wednesday.

“We target Wednesday for the next day for execution because by then some inroads should have been made,” said a syndicate banker.

Another syndicate official said it was either Wednesday or nothing this week.

“Things are so unsure and shaky,” he added.

Syndicate bankers said that markets had opened weakly this morning, although one noted that positive statements had been made by Moody’s and Greek opposition parties during the course of the morning.

Market participants proposed ING-DiBa as a possible candidate to reopen the market after the issuer finished a roadshow last week. Another syndicate official suggested that if Germany’s ING-DiBa took advantage of a possible Wednesday window, the issuer would have to move quickly. Thursday is a public holiday in parts of Germany.

“If they do it on Wednesday it will be a real kick and rush,” he said.

ANZ National, which also went on a roadshow this month, is understood to have decided to postpone its new issue project until after the summer to give market conditions more time to settle, although it may reassess this position in light of market developments.

A syndicate banker familiar with the New Zealand bank’s plans said that feedback from the roadshow had been “quite strong” but that as a well funded issuer ANZ felt it did not need to rush to launch a deal in such uncertain markets.

Italy warning played down

On Friday Italy’s Aa2 rating was placed on review for possible downgrade, with Moody’s citing challenges to economic growth, risks surrounding Italy’s fiscal consolidation plans, and implementation risks associated with European sovereigns with a high level of debt.

“Moody’s review of Italy’s sovereign rating will focus on the growth prospects for the Italian economy in coming years,” said the rating agency, “and particularly prospects for a removal of important structural bottlenecks that could hinder a stronger economic recovery in the medium term.”

Italian spreads widened 7bp-8bp this morning, but that was in keeping with other peripheral countries, which had all widened.

“We definitely will not see Italian issuers,” said a syndicate official. “The Italian BTP market has to calm down again and then there could be a potential opportunity for a candidate but currently there is no window for an Italian issuer.”

Another syndicate official said that Moody’s rating action had very little effect.

“Overall the peripherals are wider anyway,” he said. “I think Moody’s had a limited impact, and that it’s more the noise around Greece and Spain, because we also see Spain widening.”

Another syndicate banker said that Moody’s action did not come as a surprise and suggested that although it would make issuance more challenging for second tier Italian banks it was not a market mover.