Greece

High yield borrowers continue to hold back deals and avoid paying steeper issue premiums than they would have faced before the latest Greek crisis, but the new bailout offer is easing fears.

Piraeus Bank has cancelled its covered bonds which, along with all other Greek covered bonds, are no longer eligible for funding under the European Central Bank’s Emergency Liquidity Assistance facility. The move comes after ECB raised ELA collateral haircuts to a rumoured 45% with a warning that it may cut liquidity off completely two weeks from now.

Markets could be facing a protracted period of uncertainty, as a Greek exit from the euro seems more likely after the “No” vote in Sunday’s Greek referendum. The Eurogroup is expected to hold a summit on Tuesday when it will become clear whether or not there is a political will to do a new deal with Greece. Risk aversion should ultimately favour covered bonds, but borrowers will need to price deals cautiously.

The Greek Prime Minister’s decision to provide voters with an opportunity to reject the country’s bailout conditions in a referendum is an unusual move, but not without precedent.

If Greece defaults on its debts it will be its sixth sovereign default since independence in 1829. In fact, Greece was in arrears on its external loans in no fewer than 51% of the subsequent 180 years, Europe’s worst record by far. But in those past defaults does there lie a solution for the country's troubles today?

Moody’s said on Thursday that, should Greece leave the euro, investors in Greek covered bonds would still likely receive payments in euros. Given that there are barely any Greek covered bonds held by third party investors, and the fact that the research is predicated on Grexit, the discussion is largely theoretical.

A new narrative on Greece has emerged. Syriza, the country’s recently elected left-wing party, has for months been known across Europe and across capital markets exclusively for its anti-austerity views. Now, we are hearing something at once more surprising and more worrying: that Greece, under its new government, is beginning to side with Putin’s Russia.

Cover pool encumbrance was steady last year versus the previous year, Fitch said on Thursday. The most stable levels were among the most encumbered institutions, where covered bonds have made up a large share of their financing for a long time.

Fitch has upgraded a series of Greek covered bonds, following the sovereign upgrade of the Hellenic Republic and of Greek banks. Meanwhile, Standard & Poor’s said covered bonds had recently shown rating stability despite the fragile environment.

Though the secondary market was subdued on Tuesday, the tone was still clearly constructive with buyers in virtually all sectors bar the medium part of the multi-Cédulas curve. Though the near term outlook is expected to remain buoyant, dealers are sharply divided on the outlook for this autumn and beyond.

Caisse de Refinancement de l’Habitat launched the largest French covered bond in months when it tapped a 12 year trade for an impressive €750m on Wednesday. But despite evident domestic demand, follow on trades are likely to have to wait until after the Greek elections.

Europe’s peripheral covered bond markets are looking over their shoulders after Fitch downgraded Banco Popular Portugal’s covered bonds on Wednesday. This followed downgrades of Greek and Cypriot covered bonds which have left their issuers unable to access emergency ECB repo funding.