Politics Is Everything for Europe's Would-Be Borrowers

(Bloomberg Gadfly) -- It's investment-grade corporate-bond day in Europe, with The Coca-Cola Co., Vodafone Group Plc, and Renault SA among the luminaries gracing investors with their presence in the new-issue market. It turns out politics is everything in continental credit.  

The snapback in yields of 10 year French bonds over German debt, as centrist French presidential candidate Emmanuel Macron gained ground in polls, opened the window for issuance. Le Spread at one point was below 70 basis points for the first time in more than a week, and that means risk is back on -- the more than 4 billion euros ($4.2 billion) of bonds being marketed today is more than a third of everything issued in February so far. 

And with syndicate desks looking to get their totals up before month-end, capped by who knows what from President Donald Trump's first address to a joint session of Congress on Tuesday evening -- it is time to seize the day.  

The 19 issues launched in February (not including today) is a good deal less than January's stellar 34. While the European Central Bank's corporate bond purchases provide a benign backdrop for new sales, that turns out to be no match for benchmark government debt's newfound sensitivity to French political news. Still, the current flatness of credit spreads in the face of this year's supply shows that investors are still tempted by a reasonable new issue premium. 

There's a relatively heavy European government calendar this week of perhaps 30 billion euros or more, starting with Italy today with around 10 billion euros -- at the same time, there's plenty of cash coming into the market from redemptions and maturities, so the stage is set for these sales to be well-absorbed.

Like their corporate brethren, these government maturities are all around the middle of the curve, about three to seven years, nothing too heroic. Long-dated issuance is for calmer, less politically-driven markets. There is business to be done in the shallow end.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

To contact the author of this story: Marcus Ashworth in London at mashworth4@bloomberg.net.

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net.