A Greek rescue package agreed by European leaders led to improved market conditions this (Friday) morning, but covered bond bankers were divided on whether issuers would tap the market next week or not.

George Papandreou, Herman Van Rompuy, José Manuel Barroso

Yields for non-core European sovereign debt fell, with that on Spain’s 10 year Bono, for example, down 12bp. OBGs and cédulas tightened around 10bp-15bp, while German Bund yields widened.

“There’s a bit of a two-way flow, though it’s a bit short on the buy-side,” said a syndicate official. “We’re not seeing much in the core because people are so focussed on improving the peripheral situation.

“Traditionally, on these packages, you’ve only seen a temporary uplift, but I think this one will last a bit longer,” he said.

A syndicate official said it will take time before the full impact of the rescue package properly filters through to the market.

“We still don’t know exactly what national parliaments have to do to make it pass, or about the revamp of the European stabilisation fund,” he said.

“It still needs to show whether it’s another step down the highway to hell or whether it will have a lasting positive impact.”

Syndicate officials were tentative in their predictions about a covered bond potentially coming to market next week.

“I think it’s definitely feasible to issue next week,” said a syndicate official. “At the same time there are not as many candidates out there as you would like.”

A covered bond banker wondered if the improvement today was just a temporary state, or has if the situation had really improved.

“I would expect – if we go through the weekend and start the week on a similar sentiment – then we should see some deals,” he said. “I would imagine anyone could come, but mainly I would expect the French, the Germans, or the Nordics.

“I would be very surprised to see the Italians or the Spanish attempting to come to the market next week.”

Other market participants played down the chances of a trade.

“I’m not aware of any candidate that has funding needs so great that it would come at the levels it would need to come in this market,” said a syndicate official. “I think the overall scenario has not changed enough that one could consider this is all done and dusted and smelling of roses.

“The problem goes far too deep.”