After rumours of the beginnings of a euro-zone rescue plan and a possible Greek default circulated over the weekend, market participants indicated the market was more positive today (Monday) but needed to stabilise further before covered bond issuance could occur.

“We’re in fairly good shape as a whole,” said a syndicate official, adding that the Bund was 60 ticks lower and that there was a slightly positive trend on yields.

“There’s not much going on in the way of cash,” he said, “but in a way, that’s typical of Monday in terms of there not being a lot of trading.”

Another syndicate official said that markets had rebounded after “tanking” this morning, but that he would not be surprised if stocks fell again on the opening of US equity markets later today to cause them to close the day’s session unchanged.

Syndicate officials suggested the market needed at least 24 to 48 hours of stabilisation before covered bond issuance could be considered.

“Conditions remain choppy,” said a banker. “Although there is strong performance in equities, there still isn’t spill-over into the cash markets.

“We need the markets to solidify before even talking to investors about primary issuance.”

IMF head Christine Lagarde

Market participants said a final solution to Greece needed to be found to calm the markets. European policy-makers and International Monetary Fund officials have been publicly repeating the official line that a Greek default is not on the agenda, but a syndicate official said he felt that they are preparing the market for an “orderly disorderly default” and that the idea is “to stabilise the mess”. In the meantime the lower house of Germany’s parliament will be voting on the European Financial Stability Facility on Thursday.

Another syndicate banker noted that an orderly default by Greece seemed the most likely outcome, but added: “It’s all hearsay – nothing concrete.”

“Hopefully we will get some more concrete news soon because we need it for the market to recover,” he said.

Others were more sceptical.

“At the moment, political will alone will not help the market,” said a syndicate official. “It’s not really convincing what’s going on politically.

“We definitely have some fear in the market clawing up.”

Another syndicate official also said he expects continued bad headlines, with no clear resolution, which will be bad for markets.

“I would hope there would be more firm action on Greece, but I doubt that will happen in the next couple of weeks,” he said.

A syndicate official said that while the odd covered bond tap and some sovereign, supranational and agency supply may be possible, a proper reopening of the benchmark covered bond market would not occur without clarity on Greece. And if the “subject drags on”, he added, the market could be closed for the year.

Policy makers are buying time to clarify a range of issues that are tied in the sovereign debt crisis, he suggested, adding that market segments uncorrelated with sovereign risk, such as strong corporates and prime residential mortgage backed securitisation, could fare better.

Another syndicate official was at a loss to suggest an issuer that would want to reopen the market at prevailing funding levels, and said that investors would need to start buying to inject some confidence, but that he did not know what would give confidence to the buy-side.