An unexpectedly decisive “no” vote in Greece’s referendum yesterday (Sunday) has dampened hopes the covered bond market will reopen this week, with bankers stating that, despite a modest market reaction, issuers are likely to wait for further clarity over the likelihood of Grexit.

Market participants had hoped that a “yes” outcome, with the Greek public voting in favour of the terms offered by Greece’s creditors, would permit a swift reopening of the covered bond market, with the last euro benchmark deal having been a Eu500m seven year from HSH Nordbank on 15 June.

After Sunday’s result, however, bankers today (Monday) said an agreement between Greece and its creditors appeared less likely, raising the risk of a Greek exit from the euro.

“Obviously, no one is going to be pulling the trigger in this market,” said a syndicate official. “The wait and see approach that everyone adopted before the referendum seems to be carrying on through. The market isn’t sure how to read this surprisingly strong victory for the ‘no’ vote.”

Another syndicate official agreed, and acknowledged that many market participant’s base case had been that the outcome would at least be a close call.

“We had to be optimistic,” he said, “but this strong result was not expected. It seems there is little ground for further talks, so the problem now is there is an indefinite timeframe on the new negotiations – if indeed there will be any.

“The market is just going to have to wait and see and this uncertainty will not be going away.”

Syndicate officials noted that the market’s behaviour today was encouraging, with covered bond spreads remaining relatively stable. One syndicate official cited core and semi-core spreads as having moved 1bp-2bp wider, while peripherals were more affected, with Italian and Spanish spreads being marked 4bp-5bp wider.

“There are no signs of real weakness in the asset class,” he said. “One positive to take from the reactions of the markets is that any sell-off is happening in an orderly manner.”

Another banker noted that equities were down 1% and credit indices were only marginally wider.

“Most people I speak to seem surprised by the moderate reaction of the markets,” he added.

However, this reaction is unlikely to be enough to convince issuers to move forward with new deals, bankers said, as execution risk remains elevated.

“You need to keep an eye on performance over the next couple of days,” said one. “There are still a lot of macro, ‘what’s going to happen next?’ moments coming up. We will need to wait and see how Greece attempts to reopen the talks.”

The banker cited 20 July – when Greece is due to make a Eu3.5bn payment to the ECB – as the next deadline to watch.

Another syndicate official suggested there would be no primary market activity until at least Wednesday, but said windows may emerge for opportunistic issuance.

“It would not be the right advice to launch a deal now, but the market is not closed,” he said. “We have seen already that narrow windows can open if we have some positive news from the negotiations.

“Issuers will be looking to jump through those windows, because we don’t know for how many weeks and months these conditions could remain.”

The syndicate official added that the only deal that could be expected to work in current conditions would be a German Pfandbrief offering a significant new issue premium.

Another banker, predicting that a new issue would have to offer a concession of up to 10bp, suggested that issuers would be unwilling to pay the premium required to reopen the market this week. He added that continued volatility in rates also means that demand for longer dated paper remains limited.

“And for many issuers, those are the only deals that make sense,” he said. “Banks can access TLTRO for shorter term funding, so you won’t find too many issuers wanting to launch three year deals.

“There are now many challenges for the covered bond market, and they do not paint a good picture.”