Bankers were cautious about the outlook today (Monday) in spite of encouraging news from Washington having given sentiment and financial markets a lift.

A bipartisan deal to raise the US debt ceiling that has been endorsed by President Barack Obama is set to be put to the Senate and the House of Representatives ahead of Tuesday’s midnight deadline, easing fears that a new crisis could hit financial markets.

Market participants said the reaction this morning was positive, with spreads for peripheral sovereign debt tightening around 10bp-15bp – the 10 year Bono down to 6% after having been above the key level last week – and French and Belgian spreads said to be performing well.

“The market opened with a more constructive tone this morning,” said a syndicate official, “with indices and swaps a couple of basis points tighter, which tells me there’s a lot more of a positive tone in the market.

“There’s still uncertainty in the market though,” he added. “It’s good to see we’re a bit tighter today, but it’s not enough. It’s still not stable enough to move forward with primary issuance.”

Another banker agreed that there has not been a clear enough change in the market for a new issue.

“In the first hours after the announcement we saw some sort of positive reaction considering there is some activity going on in the US,” he said. “But there is definitely no clear change in mood or sentiment.

“This budget solution didn’t give us any hint of when we will see this change.”

On the positive side, he added, there was no pressure on spreads.

A syndicate banker said that the US opening was being awaited to see how US markets would react.

There were some fears that once the US debt ceiling issue is resolved, the focus will turn back to the euro-zone.

“With the US resolved, we could see the market turn back to problems in Europe,” said a syndicate official.

Another agreed, saying that it remained to be seen how much private sector participation there will be in the Greek bail-out package announced two weeks ago.

Bank results due out in the coming days – with HSBC reporting today and BNP Paribas due to report tomorrow (Wednesday) – could also affect sentiment, he added.