The euro covered bond market is likely to remain closed until at least next week, according to bankers, as the threat of a Greek default and exit from the euro looms ahead of a referendum on the terms of any potential bailout on Sunday, although spreads were seen as relatively resilient.

Amid uncertainty and wider market volatility, bankers said the euro covered bond market was effectively closed for covered bond issuers.

“The market is stone dead,” said one syndicate official. “A standard covered bond requires 24 hours of market stability, and right now, we don’t have that.

“There are few names that can get away with intraday trades, and they will be in no hurry to come forward.”

Another syndicate official said a reopening of the market appeared unlikely until at least after the referendum.

“Right now you just can’t call what is going to happen,” he said. “Does this absolutely rule out issuance? Not really. But practically, yes, it probably does.”

Bankers said that all covered bond spreads except German Pfandbriefe had widened today, but noted the effect was relatively marginal, peripheral spreads widening by around 5bp and most core spreads by around 2bp-3bp.

“This is just standard nervousness and nothing overly worrying,” said one. “The covered bond market has been resilient and it is remaining so.”

Bankers also said that few trades were taking place.

“There has been a move but that is mostly down to people marking their books wider than actual trades,” said one. “Liquidity is practically zero.”

However, bankers said more pronounced volatility in sovereign yields would be enough to keep issuers away from the market. One noted that the Italian 10 year government bonds, for example, opened 40bp wider than Friday’s close, before tightening to trade 25bp wider later in the morning. The 10 year Bund yield was more stable, moving within a 5bp range after having opened 19bp tighter.

“These are difficult times,” said a syndicate official. “On top of everything we have had in recent weeks, with rates volatility, high new issue premiums and the impact of CBPP3, we now have this special Greece volatility.”

However, the syndicate official said he would not rule out that a short-dated, CBPP3-eligible deal from a top quality core name and offering a 10bp premium could find buyers in current conditions.

“But I don’t see any issuer for whom this would make sense,” he said.

Another banker agreed, but stated that any new deal would need to offer a “cracking, significantly juicy” new issue premium.

“Why pay this?” he said “No issuer is so desperate for funding. And such a deal could also have big repercussions on secondary spreads, and no one wants to responsible for that kind of repricing of the market.”

Stating that the volatility likely meant there will be no further covered bond supply this quarter, another syndicate official noted that June has been far quieter than many market participants had expected, with benchmark euro covered bond supply totalling Eu7bn.

The syndicate official also noted that Q2 supply euro supply is down Eu8bn from the same period last year, and added that the quantity of supply in Q3 now hinges on the Greek outcome.

“Obviously the first couple of months in Q3 tend to be quiet anyway, so it really depends on how the Greek situation develops over the summer,” he said. “That will dictate how busy things get in September.

“For now, all we can do is wait.”