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European Bond Research – April 10, 2019

Posted on April 10, 2019
EUROZONE’S GOVERNMENT BOND AND EQUITIES MARKETS RALLIED, WHILE THE EURO DECLINED AFTER THE ECB CHIEF MARIO DRAGHI WARNED THAT THE ECONOMY FACES MANY HEADWINDS. The ECB remains dovish on the outlook for inflation as it sees further depreciation over the upcoming months. Germany’s benchmark 10-year bond yield fell to a one-week low of minus 0.038 percent and the French 10-year bond yields fell 3 bps, resulting in higher bond prices. The ECB and Bank of England have implemented “swap-lines” in place to offer each other’s currencies in banks in their respective jurisdictions if money markets freeze up. European Union leaders will grant Prime Minister Theresa May a “second delay to Brexit at an emergency summit; timeframe and terms have not been disclosed.” The UK 10-year Gilt declined one-basis point.  FTSE 100  -0.03%, STOXX Europe 600 +0.26%, CAC 40 +0.26%, German DAX +0.51%.

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MAJOR AIRLINER VIRGIN ATLANTIC POSTS annual loss for a second year due to a shaky economy, higher costs of fuel generated by a weaker pound. Total revenue declined to 2.78 billion pounds and passenger numbers grew under 5 percent for Q4 of 2018. The pound declined 5.6 percent against the U.S. dollar in 2018, as Britain “contended” with political and economic uncertainty. Among European investment grade bonds showing a concurrence of top price gains at appreciable volumes traded,  Barclays PLC (USD) 10.179% 6/12/2021 made some analysts’ ‘Conviction Buy’ lists. (See the chart for  Barclays PLC bonds below). Niral Mehta (nmehta@advantagedata.com).

Sovereign-Debt Snapshot

Country Maturity (Y) Yield (%) Previous (%) Spread (bp)
Australia 10 1.909 1.885 -58.8
Belgium 10 0.454 0.466 -204.2
France 10 0.348 0.357 -214.9
Germany 10 -0.008 0.011 -250.4
Italy 10 2.432 2.490 -6.4
Japan 10 -0.045 -0.045 -254.1
Netherlands 10 0.086 0.093 -241.1
Portugal 10 1.195 1.224 -130.1
Spain 10 1.081 1.085 -141.5
Sweden 10 0.238 0.258 -225.8
U.K. 10 1.106 1.115 -139.1
U.S. 10 2.496 2.530

Credit-Default Swap Market

LATEST NEWS: Top moves, sovereign tighteners (5Y): Belgium 25 bp and Denmark 11 bp. Sovereign wideners (5Y): China 43 bp and Dubai 135 bp.

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New Issuance

New Issues New Issues [Continued]
1. Compartiment Cr Gca-Cpe-006 (EUR) 0.2% 4/12/2021 (04/09/2019): 2000MM Unsecured Notes, Price at Issuance 100, Yielding .2%.

2. UniCredit Bank AG (EUR) 0.265% 4/14/2026 (04/09/2019): 50MM Secured Notes, Price at Issuance 100, Yielding .27%.

3. Glencore Finance Europe (EUR) 1.5% 10/15/2026 (04/09/2019):500MM Senior Unsecured Notes.

ADI Indexes

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DATA CHECK:

iShares Core EUR UCITS iShares Euro High Yield UCITS
NAV as of 04/10/2019, 131.49 NAV as of 04/10/2019, 104.10
Daily NAV Change (%) +0.14% Daily NAV Change (%) +0.17%

OVERALL EUROPEAN CREDIT MARKET:
The euro-zone economy shows signs of positive momentum, although conditions are expected to deteriorate hindered by the termination of quantitative easing, weakening credit rating quality, and uncertainty regarding the outcome of Brexit. Closely watched indicators and rates:

  • Eurostat’s unemployment ratecurrently 7.8% (seasonally adjusted, February 2019)
  • Eurostat’s quarterly GDP: 0.2% (2018 Q3 Final)
  • 6-month Euribor: current value –0.231%, as of 04/09/2019

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