 "ECB scraps obligation on banks to report bad loans as low as 100 euros")
US dollar bonds of financial institutions sold off sharply on Monday, as investors struggled to see a clear path ahead after the UK's vote last Thursday to leave the European Union.
Riskier bonds issued by UK banks led the market wider, according to MarketAxess.
A perpetual non-call 10 bond issued by Royal Bank of Scotland last summer was trading at a dollar price of 89.7 - 5.6 points lower than Friday and 8.5 points down since Thursday.
A 7.5% perpetual non-call 10 Additional Tier 1 issued by Lloyds Banking Group in 2014 traded down to 94 - 3 points lower than Friday and 7 points lower than Thursday.
"Anything UK-based is getting hammered," said a syndicate banker. "Naturally that's going to be exacerbated in the capital securities."
European and US banks also suffered amid worries over the terms and timing of the UK's exit.
UBS analysts Stephen Caprio and Matthew Mish removed their overweight recommendation on US banks, citing the risk of contagion from turmoil in Europe.
"The correlation to European financials, broader business model concerns, and rising NPLs are problematic," they wrote in a research note.
Citigroup's recent 3.4% 10-year senior bonds were 10bp wider on the day at G+173bp.
Bonds issued by JP Morgan and Bank of America Merrill Lynch were more resilient, but still widened by 2bp.
JP Morgan's 3.2% 2026 and Bank of America Merrill Lynch's 3.5% 2026 were both 2bp wider at T+149bp and T+172bp respectively, according to MarketAxess.
Deutsche Bank's 4.5% April 2025 subordinated bonds, meanwhile, were 36bp wider at G+433bp, according to MarketAxess.
US stocks plunged on Monday, with the Dow Jones Industrial Average dropping more than 250 points. It closed down more than 600 points on Friday.
The widening in credit derivative indices was modest though, with the CDX IG 26 index 1.1bp wider at 87.9bp, according to Tradeweb.
No high-grade new issues were announced on Monday, marking the fourth consecutive day of no primary deals. But bankers are not ruling out activity this week.
Molson Coors could pull the trigger on its M&A bond, after it held calls with investors last week.
"It's a name that has been widely telegraphed," said a syndicate banker. "It's a good name to reopen the market, as early as tomorrow."
Others said attractive yields could entice more borrowers, but said names with minimal exposure to the UK or Europe would fare best amid the volatility.
Ten-year US Treasury yields were at just 1.472% on Monday, from 1.579% on Friday. The 10-year yields touched a low of 1.38% in the summer of 2012.
