Event risk continues to drive market sentiment

Over the weekend, Turkey’s governing party lost its majority in parliament. The AK Party, which has been the ruling party in government since 2002, is set to win 258 seats in parliament but that is still 18 short of the number needed to win a vote of confidence to form a government. This means that the weeks ahead will involve a lot of coalition bargaining. Any failure to reach consensus to form a coalition within 45 days, as stated in the constitution, will result in the electorate’s return to the ballot box for another election. What complicates the current situation is that all three opposition parties indicated that they do not intend to form an alliance with the AK Party.

Meanwhile, in Ukraine, there has been little or no progress on the debt restructuring progress as the creditors stated that there is no there is no basis for detailed talks. On the other hand, the Ministry of Finance officially rejected the creditor proposals. However, Ukraine’s Minister of Finance Natalie Jaresko stated that although debt restructuring is important, it is not necessary to receive the second tranche from the IMF, which is expected in July. As for developments on Russia and the ongoing sanctions, this issue was highly topical over the weekend in the G7 meeting in Germany whereby the members pushed for an extension to sanctions until there is comfort from their end that the Minsk agreements are fully implemented.

Touching upon the lingering Greek crisis, we are now in its umpteenth week (or even month) and the pattern seems to be the same week in week out. There is hope that an agreement can be reached (much has been said about the aggregating of June payments into one lump-sum payment, just as Zambia did well over 20 years ago), and risk appetite seems to be edging upwards, only to be quelled when news confirms that little to no progress has been made and that big differences remain between the parties. In fact, EC president Juncker stated over the weekend that Greek premier Tsipras failed to deliver promised proposals, further casting doubt on the credibility of the Greeks; this placed the possible bailout plans in doubt.

Activity on the European primary bond market slowed down last week, as expected given the high levels of volatility in the sovereign bond market. “Only” €3.6bn worth of new issues was printed, down from €17.6bn a week earlier. Never the less, towards the end of last week, we have had several announcements of new roadshows and bonds that might come to the markets, with issuance expected the pick up once volatility subsides. One of the highest profile primary bonds for this week is undoubtedly BNP’s and Bank of Ireland’s inaugural Additional Tier One (contingent capital) notes, which are expected to be well received by institutional investors.