Prospects for euro issuance of covered bonds this week looked remote this (Monday) morning as market participants await the outcome of a crucial parliamentary vote in Greece later in the week, but a pipeline for dollar supply could be growing, according to syndicate officials.

Market sentiment was said to be soft this morning following a difficult session on Friday, which a syndicate banker described as “a game of two halves” – the first characterised by tighter peripheral spreads after encouraging news on Greece the previous night, only to be followed by an afternoon of deteriorating sentiment, in particular surrounding Italian banks (see separate article).

“Friday was bad, and it’s carried on a bit today,” said the banker. “The market as a whole is very confused.”

Another syndicate official said that market tone had improved somewhat following a weak opening this morning, and that he had received some calls from issuers for fresh pricing.

“Because it was such a bad backdrop on Friday people want to see one day of good tone before doing anything,” he said.

However, market participants’ main focus is on the outcome of a vote on Greece’s austerity package in the country’s parliament, which is due on Wednesday evening. A second vote, to enact the laws necessary to implement the package – if approved – is scheduled for Thursday.

“This week will be very quiet, with all eyes on Greece,” said one syndicate banker. “There are a lot of question marks right now, and there won’t be any clarity on the second bailout until the weekend.”

Market conditions could be conducive for euro issuance next week if positive news about a second bailout for Greece emerges over the weekend, he suggested, although any supply would still be window-driven.

The end of the first half of the year falling this week was another factor working against new issuance, given difficult pre-existing market conditions, according to market participants.

However, one syndicate banker suggested that some issuers were considering coming to market this week.

US interest on the rise

A pipeline of US dollar covered bonds could be growing, according to syndicate bankers.

HSBC is understood to have mandated BNP Paribas, HSBC, Royal Bank of Scotland and Société Générale for a dollar deal and has readied an online roadshow for investors, while Münchener Hypothekenbank has been mentioned as a candidate for a Reg S deal and at least one other dollar project may also be under consideration. Korea Housing Finance Corporation (KHFC) is also roadshowing a dollar covered bond, its second.

A syndicate banker said that although a rally in underlying yields rendered deals challenging, this was to an extent offset by increased demand from Asian investors and a growing investor pool in the US.

All-in funding levels are reasonably attractive at the moment for overseas issuers seeking to tap the dollar market, he added.

“Levels have widened over the past couple of weeks,” he said, “but the cross-currency swap has blown out and largely offset the widening in the secondary market.”

Any issuers considering launching dollar covered bonds in 144A format will have to bear in mind the fourth of July public holiday in the US next week, which could mean that a deal may either have to be launched early this week or wait until the week of 11 July, said syndicate officials.

The existence of an issuance window depended not only on market conditions but the credit quality of the issuer, said one, adding that an issuer such as HSBC could find “larger” windows.

The availability or otherwise of domestic investors as a result of the next week’s US public holiday was less relevant for a Reg S only dollar deal, however, according to syndicate bankers. One identified anniversary celebrations of 90 years of communism, which is being marked on Friday in China, as possibly worth taking into account, however.