Early in the year, the flood of public sector deals, most of them successful, lent the market an ebullient tone, especially compared to January 2016, as borrowers steamed through their planned funding programmes. But for the doom mongers, each oversubscribed book was an indication that investors were aware of leaner times ahead.
Elections in the Netherlands, France and Germany, an unpredictable US executive and the expectation that Article 50 will be triggered soon, marking the start of the UK’s exit from the European Union, have all given investors and issuers cause for concern.
Even in the more sedate world of monetary policy, there’s still lurking danger. The European Central Bank’s public sector purchase programme no longer seems like the immortal market mainstay that it appeared last year. Even the whiff of the removal of the quantitative easing backstop in October 2016 caused a spasm of volatility throughout eurozone government bond curves.
But the leaner times may have arrived sooner than expected.
Far-right French presidential candidate Marine Le Pen’s Eurosceptic manifesto appears to have tapped into an increasingly powerful antiglobalist sentiment. That, combined with scandals afflicting her opponents, has propelled her to a lead in the polls.
Despite the fact that most polls indicate that Le Pen would lose the second round in the presidential elections, markets have been spooked, causing a sharp upswing in France’s cost of debt.
But worries about Le Pen are not going away anytime soon, and so French borrowers have had to hit the market regardless.
Caisse des Dépôts et Consignations will sell its first green bond on Wednesday, while Caisse Centrale du Crédit Immobilier de France (3CIF) hit screens on Tuesday with a €650m four year. The European Financial Stability Facility (EFSF) printed €5bn, stepping back into a market afflicted by the same worries that damaged its 26 year deal only two weeks ago.
The market on Tuesday achieved some stability, but that was not clear when EFSF announced or when 3CIF was formulating their deal. Had the volatility early in the week continued, or if more news of Le Pen’s success had surfaced, we might be talking about their risky decision to announce a deal in an unreceptive market.
But what choice do issuers have?
The jittery response to every headline about Le Pen’s success looks likely to define the eurozone’s tone for the year. If you are waiting for a clean window, you might find yourself waiting a long time. Better to fund while you can, rather than carrying on hoping all year.