Markets

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.

Huzzah! European politics are safe once more! Back to normality -- and the return of the long bond.

European sovereigns have been conspicuously scarce in the longer-dated new issue market for many weeks, but the election of President Emmanuel Macron means that might be about to change.

This year has so far has been nothing like 2016 -- the highlight of which came in October, which saw deals like Austria’s 70 year deal for 2 billion euros ($2.2 billion). Italy came with a bumper issue in 50 years. Heady times. 

The global bond market slump following President Trump’s election reduced investor demand for long duration risk, as seen in the sharp pickup in yields.

Trumped Up
Italy's ultra-long bond came just before the U.S. election, and it bears the scars of the rout in fixed income that followed
Source: Bloomberg

With the exception of a brief spell of longer-dated issuance at the start of 2017, the mood music on the continent has been decidedly against such securities, as concerns about the outcome of the French elections took center stage. Data compiled by Bloomberg News's Fara Babaev shows how the shift in sentiment played out in the new-issue market.

When The Music Stops
European governments are issuing fewer long-maturity bonds this year
Source: Bloomberg

Now that Marine Le Pen is firmly out of the picture, the political environment is more relaxed and investors may be tempted back by the higher yields on offer for longer maturities. This might prompt European sovereigns to test the waters in the syndicated market, a relatively new venue for governments that lets them raise big amounts in one go. The alternative is the drip-feed of auctions.

France itself should be on the way. The national treasury has already said it will examine the prospects for a syndicated issue of a 30-year bond. Even though yields haven't fully shaken off the Le Pen effect, the government needs to take the opportunity to fill out its maturity profile while the market's open.

Le Pen Effect
Political turmoil has left French yields higher than at year-end despite Macron's win
Source: Bloomberg

Italy and Belgium are among the sovereigns that should also be taking a look at tapping this market. 

Supranationals are already demonstrating that buyers are there. The European Investment Bank came to the market Tuesday with a 3 billion euro 15 year issue that saw demand in excess of 9 billion euros. 

Time for European sovereigns to surf the Macron wave.

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

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