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.

The European new issue bond market is emerging blinking from its recess but it is not yet roaring into its usual post-summer festival. Yields are simply too low to drum up demand. 

With benchmark German bund yields nearly halving over the past six weeks other high-grade issuers' yields are also getting dragged down. Syndicate desks have a tough task to entice investors to put new money into the market at lower returns than their existing holdings.

Premium Demand
Bund have performed strongly over the summer
Source: Bloomberg

Issuers may have to limit the size of their deals or offer a bigger carrot on spread to existing securities to get the pipeline flowing.

As usual, the highest-quality and most-liquid issuers are testing the waters first. The European Financial Stability Facility was first off the blocks Tuesday with a 23-year, 2 billion-euro bond ($2.4 billion). Demand was modest, at less than twice the amount available for sale. A respectable result, but with a yield below 1.5 percent it is hard to attract a swarm of interest.  

Lower Returns
The 26-year EFSF bond issued in February has performed well since Macron's victory in May
Source: Bloomberg

Finland seems to have caught on with the 10-year security it's selling Wednesday. Adjusting for the 18-month difference between the new issue and the existing benchmark, it is offering a healthy 10 basis point premium. That's noteworthy -- as an infrequent issuer, it offers an opportunity for diversification. 

Other deals have been announced, such as a five- or seven-year issue from the holding company of Mitsubishi UFJ Financial Group Inc., but many of these will take time to complete. 

It makes sense for investors to bide their time, at least until after the European Central Bank meeting on Sept. 7.

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

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Marcus Ashworth in London at

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