Market participants described sentiment as grim today (Monday) as a combination of macroeconomic conditions, the release of stress test results later this week and the onset of summer holidays prevented issuance.

“There is no market,” said a syndicate official. “There’s absolutely nothing going on at the moment.

“I would assume that the first half of the week will be dead, and they may test the bathwater later this week, but it’s very difficult to forecast.”

Another syndicate official said levels had widened since Friday’s close.

“Italy, in particular, is obviously affected by the contagion,” he said. “I can’t remember seeing yields on five year Italian paper as high as currently.”

EBA offices, London

Covered bond bankers said it would be an interesting week, with results from EU-wide bank stress tests co-ordinated by the European Banking Authority (EBA) due on Friday, and meetings of top EU finance officials today and tomorrow (Tuesday).

A regular meeting of euro-zone finance ministers was scheduled for today, but will be preceded by an emergency meeting called by EU president Herman Van Rompuy to discuss plans for a second bailout package for Greece, while an Ecofin meeting of EU finance ministers is in the calendar for tomorrow.

“I’m very keen to see some positive statements out of the Ecofin meeting,” said the banker.

“There are issuers in the pipeline, but unless you have to do something at the moment, it’s not advisable to go ahead,” he added.

Bayerische Landesbank put on hold an expected new covered bond issue on Wednesday in response to Moody’s placing its Pfandbrief ratings and those of three other public sector banks on review for possible downgrade.

“It worries me that the BayernLB deal was postponed,” said a banker. “When even a German Pfandbrief issuer is postponing its transaction it is not a good sign for the market.”

Another covered bond banker described the market as “dead and buried” until mid-August or September, and said there was little prospect of issuance in the meantime, aside from perhaps Korea Housing Finance Corporation in dollars and the odd tap.

“We’re not going to see much until the global market sorts out the economic situation,” he said.

Declining US Treasury yields, with the 10 year dropping to 2.97% after opening above the 3% mark this morning, may have helped thwart dollar issuance. Bankers had at the end of last week suggested that a positive surprise from US non-farm payrolls on Friday and a consequent rise in yields could pave the way for dollar supply.

“The market is incredibly defensive,” said one syndicate official of the mood this morning.

He said that assessing secondary market levels and relevant new issue premiums was a challenging prospect given such a reluctant market. He pointed out that a range of economic data was due to be released this week and that this would also need to be negotiated by market participants.