Corporate issuers have not completely given up on any transactions this side of September but violent moves in rates are making the journey to markets a hazardous one.
There were no new issues for a fourth straight session on Tuesday, with only one issuer, Celanese Corporation, in the euro public pipeline. The extended pause follows supply of only €2bn in the first half of last week.
"We've still got issuers monitoring the pre-summer window, but there's not a big rush. They have time on their hands, so are relatively patient," said a syndicate banker.
"We're not really worried about trades being pulled, and have guided our clients to meet their pricing parameters but that becomes very difficult when rates move meaningfully intraday."
Five-year mid-swaps, for example, are around 1.7%, after starting last week at above 2% and dropping to as low as 1.64% on Friday.
"The market is very quiet for good reasons. With the volatility in the rates market, whether that's from Bunds or swaps that are moving 10bp–15bp intraday, investors would naturally want to build their cushions to show interest in new deals," said a DCM head.
High-grade corporate deals last week confirmed that investors do have cash to put to work, but the new issue premiums remained elevated, as investors are also more inclined to hold onto higher cash balances to meet any withdrawals, according to JP Morgan credit analysts.
While the demand-side technicals do not look particularly supportive, earnings blackouts and holidays in the US and Europe are also helping to keep a lid on primary activity.
"This week will be very slow due to the US Independence Day holiday and there's also US nonfarm payrolls. It's the same next week, with the Bastille Day holiday on Thursday," said a second syndicate banker.
Corporate issuance is about one-fifth below last year's H1 volumes in the euro market. Bankers are hoping that supply will not slip further behind in the second half of the year.
"We're down around 20% this year and it'd be nice to see it staying at that level," said the DCM head. "It's going to be another window-driven period like in the past several months, but there should be windows and, if the market is there, there are a number of issuers that would want to go."
Another DCM head sees the market reopening from the summer supply lull "fairly early in August", as the more frequent and well-recognised borrowers will want to pick the right days instead of waiting.
"If you see some supply and the market is a little bit calmer, it feels like late August could be a bit more accommodating because we've had less supply and people might take advantage of it, saying I don't want to be number 25 when it comes to mid-September."