Market participants this (Thursday) morning played down the direct market impact of mass covered bond rating action by Moody’s, but said that uncertainty about Greece was fuelling a weaker tone, with a Barclays deal overcoming this yesterday.

Moody’s this morning took negative rating actions on covered bonds from a range of jurisdictions, with Spanish and Italian programmes hit hardest. (see separate story for more)

A syndicate official said that the rating actions were not having a large impact as they were widely expected, with bearish comments on behalf of the rating agency having flagged such moves in advance.

“It’s just weighing a bit on sentiment, but it was not a big surprise so there is no big impact,” he said, adding that covered bond spreads had not moved in response.

Another banker said that although the rating actions were not a surprise they were also clearly not supporting any issuance from the peripheral market.

“Markets have deteriorated over the last few days,” he said, “but that’s primarily due to the overall situation around Greece and fears of a disorderly default”.

Another syndicate official also said fears about the Greek situation are influencing market sentiment more than Moody’s rating actions, citing widening by up to 20bp in Spanish government bonds this morning.

Some Spanish issuers are understood to have been considering tapping the benchmark market this week, with Bankia said to have mandated, but the syndicate official said that rating actions had earlier this week put a halt to such plans, with today’s weaker sentiment coming on top of this.

“I expect it to be a quiet end to the week, and a quiet opening,” he said, adding that next Thursday would be his guess as to when the next “proper issuance” could take place although a sign-off on a Greek bail-out package could change this.

He pointed out that the Carnival season begins today in Germany, with next Wednesday (22 February) a public holiday in parts of the country.

Another syndicate banker said that sentiment is clearly weaker than a week ago because of uncertainty about Greece and Moody’s rating actions. The latter had “no real implications” and were not affecting spreads, but were contributing to a darker mood in general, he added.

“After a three week party the impression is settling in that things could be a bit more difficult,” he said.

However, he suggested it is difficult to assess the materiality or significance of the weaker sentiment given that there has only been one new issue, for Barclays Bank, to test the market.

He said that Barclays’ transaction went well, but that it was questionable whether a Banco Santander deal would have worked this week.

Barclays Bank yesterday (Wednesday) priced a Eu2bn five year benchmark at 78bp over mid-swaps on the back of more than Eu3bn of orders. Leads Barclays Capital, Crédit Agricole, ING and Natixis had set initial guidance at the 85bp over area before revising it to 80bp-85bp and then 80bp over.

The deal is only the second euro benchmark from a UK issuer this year, after comparatively busy primary market activity in sterling from the country’s covered bond issuers.

Syndicate officials away from the deals said Barclays’ transaction had gone well, with one saying that it showed there is strong demand amid few signs of further deals being lined up and a negative turn in market sentiment this week.

However, one said that the deal had not yet performed and was trading around re-offer this morning, with a big deal size and a large tightening of the initial pricing to the final re-offer spread “giving a couple of arguments why it has not performed immediately”.

“There’s not a huge tightening potential in the short term,” he added.

Another said the deal had gone very well, but added that it had been sized too large and priced too aggressively. The spread had not moved much in the secondary market, he said, but the bonds had been offered yesterday afternoon.

A syndicate official at one of the leads said the trade was holding up very well in the secondary market given the Eu2bn deal size, and was trading around reoffer after opening a touch tighter in the morning.

“People were definitely still looking for bonds yesterday after it closed,” he said.

A syndicate official away from the leads said that expectations for the deal’s performance had to take into account a negative market backdrop.

“What we are seeing is more a reflection of the market backdrop, not Barclays,” he said. “It’s definitely a good trade.”

Germany/Austria took 30% of the bonds, Scandinavia 15%, the UK and Ireland 15%, France 10%, the Benelux 8%, Iberia 6%, Italy 5%, Switzerland 4%, Asia 2%, and others 5%.

Banks were allocated 47%, fund managers 33%, insurance companies and pension funds 11%, central banks 3%, corporates 2%, and other 4%.