The primary market remained closed across asset classes today (Monday) as market participants continued to digest the outcome of the UK’s vote on Thursday to leave the EU, with markets generally calmer but still in risk-off mode after a Spanish election yesterday.

Sterling fell to a new low and European stock markets were down around 3% on average, although bond markets remained more resilient, as they had on Friday in the immediate aftermath of the Brexit result.

A covered bond banker said that secondary market liquidity was extremely low, with bid-offer spreads on French names such as Caffil of up to 10bp.

“I haven’t seen such developments in six or seven years,” he said.

Another covered bond banker said that in terms of moves, the secondary market was calmer than on Friday, with core covered bonds 1bp-2bp wider and UK names 5bp-7bp wider.

He noted that his traders had not seen the Eurosystem active in the secondary market.

“They do not seem to be benefiting from this widening to buy,” he said. “They are very quiet.”

The outcome of a Spanish general election yesterday (Sunday) was seen as having provided some relief, with expectations of a breakthrough by the rising left wing Podemos party not being realised and the right of centre Partido Popular of acting prime minster Mariano Rajoy (pictured) set to try to form a new coalition government.

Spanish government bonds outperformed Italian government bonds, being quoted at a yield 17bp tighter in early afternoon trading while 10 year BTPs were only a couple of basis points tighter. However, Spanish covered bonds were said to have drifted wider in line with the wider covered bond market and multi-cédulas to be as much as 15bp wider.

A syndicate official said that a possible restart of the primary market for covered bonds would be supported by the even lower yields to which Bunds have now fallen.

“We remain constructive on the covered bond space,” he added. “However, there is nothing out there and it would be ludicrous to pitch issuers into trades.

“It’s a bit tricky to pinpoint the timing for a reopening – we would definitely to see some days of stabilisation to make people confident putting money to work.”

Photo: Daniel López García/Flickr