It seems almost incredible that the huge appetite for duration in euros could have dried up so quickly, but deals with 10 year maturities and beyond have had a difficult time gaining traction in 2017.
The outer limit for maturities stretched further and further away during 2016, as first 20s, then 30s, then 50s became the favoured tenor of the month.
But at long last, with the prospect that the European Central Bank’s asset purchase programme will be mothballed in the near future and with the sudden return of inflation, investors have snapped back to maturities less exposed to rising rates.
KfW struggled to get over the line with a 20 year €1bn trade on Tuesday. Last week, Nederlandse Waterschapsbank struggled to fill a 10 year. The European Investment Bank ran into difficulties when tapping an April 2032 line on January 11.
The market is still to discover fully where the new limits on appetite for lengthy paper are set, but Wednesday will bring another important clue. EIB is set for a crack at 10 years and the consensus among dealers appears to be that the deal has what’s needed to go well.
Demand at the long end hasn’t vanished. Yields, though higher than they were throughout much of 2016, are still low historically and the extra spread that longer dated issues offer will still attract investors.
But if investors are to be convinced to commit themselves to buying long dated assets, particularly in size, borrowers will likely find they need to pay up for the privilege. Let's hope the EIB doesn't flunk the test.