A Greek default should not result in a deterioration of cover pools for European covered bond issuers outside Greece itself, according to research by DZ Bank analysts, who said that recent data shows only limited public sector-backed issuance has exposures that could be affected.

Two weeks ahead of the Greek government missing a deadline for a payment to the IMF yesterday (Tuesday), Günther Scheppler, senior strategist – covered bonds, at DZ Bank, said that it was quite likely that Greece would default and surveyed cover pools to explore the potential impact this would have. He found little cause for concern.

“We believe that the credit quality of the cover pools of issuers with registered offices in Europe will not deteriorate in the event of a Greek default,” said Scheppler. “This applies in particular to cover pools secured by mortgages, as well as to nearly all of the cover pools of public sector covered bonds.”

The DZ analysts’ survey found that no public sector cover pools included Greek government bonds.

They noted that a Greek default could cause risk premiums on other peripheral government bonds to increase disproportionately and that this could reduce the credit quality of public sector covered bonds backed by such debt or other public sector loans from peripheral countries. However, they found that almost half of the cover pools surveyed included no peripheral government bonds and the share of such debt in the other cover pools is less than 10%.

“The Spanish issuers Banco Santander and BBVA, as well as the Italian bank Intesa Sanpaolo, are clear exceptions,” they added. “Their cover pools of public sector covered bonds only or almost only contain public sector liabilities from Spain or Italy.”

Not surprisingly, the analysts highlighted that Greek covered bonds are likely to experience the greatest upheaval.

“However, we consider the risk of contagion from the Greek covered bond segment on the remaining market for covered bank bonds to be very unlikely,” they said. “The volume of Greek covered bonds is far too low for this.”

They put the volume of outstanding Greek covered bonds at Eu10.7bn, while only Eu846m of the only Greek benchmark to have ever been launched, a Eu1.5bn 3.875% July 2016 National Bank of Greece issue, remains outstanding, with all other Greek covered bonds private placements.

“It is reasonable to presume that the private placements were deposited as collateral for transactions with the European Central Bank,” they noted.

The Financial Times meanwhile yesterday (Tuesday) quoted David Benamou, president of Axiom Alternative Investments, which it said holds a small position in Greek covered bonds, as saying that investors in Greek debt are facing up to reality: “Markets may have shrugged off the idea of debilitating contagion but that doesn’t mean it can’t happen.”