Constructive market sentiment should pave the way for new covered bond supply this week, with Intesa Sanpaolo already out with a senior unsecured deal, said syndicate bankers this (Monday) morning, although the outcome of Greek bailout talks today will be key.

Evangelos Venizelos

Euro-zone finance ministers are aiming to this afternoon agree a new bailout package for Greece, and syndicate bankers said that failure to finalise it will have a significant market impact, with one saying that it will lead to “massive disappointment” given that the market is trading from a positive point of view in anticipation of the meeting.

Another echoed this, saying that an improved tone at the end of last week was linked to expectations of a robust outcome from the latest talks on Greece and that if this does not materialise it will have a significant impact.

“Clearly people are hoping it comes in as expected,” he said.

A syndicate banker said that he would expect there to be issuance this week, with a tap and/or new issue from “one or the other” French issuer a possibility.

Another syndicate banker also said a French issuer was definitely a candidate, speculating that CRH and Crédit Agricole were the most likely.

A couple of cédulas mandates are also said to be outstanding, and issuers are also emerging from blackouts. A banker said Bankia and Bankinter were still possible, but he thought Spanish government bonds needed to tighten further before the Spanish issuers approached the market.

Another syndicate official said it does not feel like a week of heavy supply.

Sentiment is constructive, according to syndicate officials, who pointed to a Eu1bn five year senior unsecured issue from Italy’s Intesa Sanpaolo as evidence of this.

“Clearly there is a risk-on attitude with Intesa’s book at two billion,” said a syndicate official. “But a lot of issuers don’t need covered bond funding, there having been so much issuance at the beginning of the year.”

Intesa launched a Eu1bn no-grow five year fixed rate senior unsecured deal this morning with official guidance set at 355bp-360bp over mid-swaps.

A covered bond banker said he expected issuance to be muted at the beginning of this week with a US public holiday today, and parts of Germany being off for Karnival tomorrow (Tuesday).

“I think we will see primary activity this week with any day between Tuesday and Thursday being the most supportive,” he added.

One syndicate banker said that the market opened better today after coming off the boil last week.

“It’s set up for decent names, although there seems to be a lack of willing issuers,” he said.

Large scale negative rating action on European financial institutions, including their covered bonds, by Moody’s last week was “unhelpful”, he said.

“When you get to lesser known or more challenging names that overlay is not constructive,” he said.

A syndicate banker also said the market was “pointing in the right direction”. He cited credit indices tightening and Bund futures moving sideways.

A covered bond banker noted that the secondary market was very illiquid.

“Even on trades with books of three, four, five billion, these deals have been capped on performance in the secondary market,” he said, “because all collateral is going one way, into LTROs.”