Syndicate bankers were this (Monday) morning scaling back expectations of any new benchmark covered bond supply this week, with market participants having second thoughts about the effectiveness of last Thursday’s Greece rescue package.

Syndicate officials said that uncertainty surrounding a necessary raising of the US debt ceiling had also come increasingly into focus.

Greek PM George Papandreou

Peripheral spreads tightened in the wake of the announcement of the Greek rescue package, but widened again on Friday afternoon, with equities experiencing a mixed session, Bunds higher, and Asian markets opening negatively this week.

“The peripherals go out and in, out and in,” said a syndicate official. “Spain and Italy are moving out with the govvies really.

“I was a little bit hopeful on Friday morning that we might get some issuance, but I don’t feel the market feels that good anymore.”

Another syndicate banker said there was little spread movement this morning, with Italian obbligazioni bancarie garantite levels slightly wider on the back of widening in the government bond market and spreads in core markets unchanged.

On Friday morning it looked possible that this week could bring new supply, but this looked less likely today, he said, adding that he would not bet against the market remaining closed until the end of the summer break.

Syndicate bankers said that the market needs further time to stabilise, with one arguing that a recovery will take more than the two working days since agreement was reached on the Greek rescue package. Key in his view will be the degree of commitment to the bailout package on behalf of the private sector.

“As long as there is no strong commitment from the big European banks the market will remain extremely cautious,” he said.

However, he advised against ruling out primary market activity this week, arguing that there was the potential for a deal, perhaps in the form of a tap, from a strong bank from a core jurisdiction.

Market participants said that even if this week does bring some covered bond issuance, investors will be very cautious.

“I think investors will be very selective on names, even if we see global market conditions improve,” said a syndicate official.

“Peripherals are slightly on the wider side from last week,” he added. “We don’t see much of a bid.”

Another syndicate official said that seasonal factors would be a further drag on supply.

“People are not yet dipping their toes in,” he said. “It’s hard to find a candidate with some banks in blackout at the moment and many decision-makers on holiday.

“I’m not aware of anything coming to the market.”