Protracted euro-zone talks stymie covered bond supply
Market participants are in wait and see mode ahead of a meeting on Wednesday that will follow up on euro-zone crisis negotiations this weekend, with syndicate bankers bemoaning a lack of progress that could keep the primary market closed until then.
All 27 EU member states have been negotiating three pillars of a package aimed at tackling the euro-zone’s problems, while euro-zone leaders have debated two potential models for expanding the European Financial Stability Facility.
French president Nicolas Sarkozy said more solid and durable proposals will emerge out of Wednesday’s meeting.
Syndicate officials were dismissive of the outcome of this weekend’s meetings, with one saying that “nothing really concrete” emerged for market participants to be able to leverage off and restart activity. He said that the market had opened fairly strongly, but that this was due to positive Chinese manufacturing data, and that the encouraging opening faded.
The mood in the corporate market was better, he added, but that the FIG and covered bond markets needed more clarity on bank recapitalisations and private sector haircuts on Greek debt. Three corporate deals, for America Movil, EWE and Energie Baden-Württemberg, hit the market today (Monday).
He played down the chances of benchmark supply being launched this week, and noted that the take-up of a 12 month LTRO at the ECB this week would be interesting.
Another syndicate official said that issuers were waiting until after the mid-week EU meeting to re-assess the market.
“Anyone contemplating something won’t revisit his case before Wednesday,” he said.
UniCredit Bank Austria was seen by many as the most likely candidate to come to the market, but a syndicate official at one of the leads said they had decided to wait until at least Wednesday.
“You won’t see anything before Wednesday afternoon or Thursday morning,” he said.
Another syndicate banker was sceptical that European leaders would have made convincing progress by a meeting on Wednesday.
“It’s more than likely that they will push this to the very latest time limit,” he said. “My view is that nothing will be sorted out by Wednesday, because it just isn’t enough time.”
Italian government bonds and obbligazioni bancarie garantite issues were trading about 5bp-10bp wider today, according to a syndicate banker. Sarkozy and German Chancellor Angela Merkel met with Italian prime minister Silvio Berlusconi to push for Italy to do more to boost growth and reduce its debt.
A syndicate official added that “everything is a bit wider today”.
Spain, Portugal, and France, were also 5bp-10bp wider, he added.
“There’s a little bit of weakness,” he said. “But everything is relatively calm.”
Another syndicate official highlighted volatile moves in Bund futures.
“With peripherals drifting a bit wider, we’re clearly not back on risk-on mode,” he added.
Some media reports on this weekend’s meeting of EU and euro-zone leaders said that a package of government guarantees for bank debt could be included as part of the EU’s rescue plan.
“I’ve heard the rumours,” said a banker, “but I think we have to see who would guarantee who before commenting. If Portugal guarantees Portugal, then that would be a bit of a joke – even with France.”
He said any backing for such issuance would have to be pan-European for it to work.
Another syndicate official was not aware of the reports, but said the move made sense.
“In this market it is advisable to discuss government guarantees, at the very least,” he said.