Issuers, you call this volatility?
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Issuers, you call this volatility?

Many FIG issuers were quick to abandon the primary market this week, but it could get a lot worse

Olly Copplestone cartoon for GC FIG practicing 14Jun24.jpg

European financial institutions were quick to desert the new issue market this week, following the unexpected appearance of snap parliamentary elections in France.

President Emmanuel Macron’s shock decision “blindsided” some FIG bankers.

Exit polls predicted his party would lose to the far-right National Rally in last week’s European Parliament elections, spurring the domestic political gamble.

Yields on French government bonds surged and the 10 year spread against Bunds widened by as much as 10bp on Monday. It got worse on Tuesday as rumours swirled that Macron was ready to quit his job.

By Thursday, the spread was testing 70bp — the widest since 2017 — as Macron’s approval rating tumbled.

FIG issuers went to ground, unsecured issuance dried up and there were no new mandates announced, despite what syndicate bankers said should have been a much busier week.

But FIG issuers should remember that both realised and implied interest rate volatility remains near multi-year lows — leaving plenty of scope for that to change and raising the question of whether the issuance pause could be brief.

Still to come, US elections in November could drive chaos in coming months — not to mention the ECB’s data dependency for setting policy rates, which introduces its own uncertainty and risk-premium. Add to the mix the recent rise of populist parties in the European parliament and the fiscal uncertainty that brings and you have a recipe for volatility.

Issuers would do well to use any calmer openings in coming weeks to tap investors while they can. It could be a whole lot worse.

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