It was all Cyprus again in the markets today, though the mood was one of cautious trepidation rather than panic.

Credit and equity were both relatively flat throughout most of the day as participants awaited the result of the all-important Cypriot parliamentary vote on the bailout plan. Indications are that the government has little chance of securing approval after the junior party in the coalition signalled that it would abstain.

Even this had little effect on the market. But the rumour mill went into overdrive during the afternoon, sending spreads significantly wider. First, headlines attributed to a major news agency stated that the Bank of Cyprus head said that the country would leave the euro if parliament voted 'no'. This was soon established to be false. Shortly after, the wires were reporting that the Cypriot finance minister had resigned. At the time of writing this was unconfirmed, and it was getting increasingly difficult to ascertain what news had substance amid all the fevered speculation.

By late afternoon the Markit iTraxx Europe was 6bps wider at 114bps, with banks and peripheral corporates underperforming once again. The Markit iTraxx Senior Financials was trading 9bps wider at 161bps, meaning that it has given up over 18bps since last Friday's close. This compares to just a 2bps widening in the Markit iTraxx Non-Financials index (theoretical) yesterday, and the move was likely to be relatively modest today.

Banks, particularly in the periphery, are being hit by contagion and capital flight fears, as well as concerns that senior bondholders could be next in line to share the burden of bailouts. Cyprus itself was 6 points higher at 31 points upfront, though liquidity was poor.

No doubt by the time we wake up tomorrow the situation in Cyprus will have changed again. But it seems fairly certain that the bailout plan that was put on the table last weekend will have to be amended if it has any change of being implemented. Various alternatives are doing the rounds, including: reprofiling sovereign debt; a greater role for Russia; using future revenues from natural gas reserves; a combination of all three. If there is a 'no' vote (we still don't know when the vote will be held), then a flight to quality seems assured.

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