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European Bond Research – April 15, 2019

Posted on April 15, 2019
UK ECONOMY LEANS ON CONSUMERS AS BREXIT DRAGS ON BUSINESSES. Britain’s economy only grew 1.4 percent in 2018, the weakest increase in six years. Bank of England’s Governor, Mark Carney, stated: “When the economy is reliant on consumers, growth becomes very one-dimensional.” Bank of England has signaled not raising interest rates allowing cheaper capital to circulate around the economy. The value of business investment lost in Britain’s economy since the June 2016 referendum is roughly 10 billion pounds. Business investment fell every quarter of 2018, the longest decline since the 2008 financial crisis. The UK 10-year Gilt increased two-basis points.  FTSE 100  -0.03%, STOXX Europe 600 +0.14%, CAC 40 +0.09%, German DAX +0.18%.

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TRADE NEGOTIATIONS between the EU and the United States will not be easy, “but both sides should benefit in the end, German economy Minister Peter Altamaier said on Monday.” The goal is to reduce tariffs to zero and ultimately fend off a trade conflict. Negotiations will commence later this week and will continue for the upcoming months. Among European high-yield bonds showing a concurrence of top price gains at appreciable volumes traded,  Barclays PLC (USD) 4.375% 9/11/2024 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 1.893 1.869 -66.5
Belgium 10 0.495 0.434 -206.2
France 10 0.402 0.334 -215.5
Germany 10 0.059 -0.007 -249.9
Italy 10 2.395 2.372 -16.2
Japan 10 -0.048 -0.059 -260.5
Netherlands 10 0.134 0.073 -242.3
Portugal 10 1.169 1.130 -138.8
Spain 10 1.053 1.009 -150.4
Sweden 10 0.264 0.228 -229.3
U.K. 10 1.214 1.150 -134.3
U.S. 10 2.557 2.498

Credit-Default Swap Market

LATEST NEWS: Top moves, sovereign tighteners (5Y): Belgium 23 bp and Finland 12 bp. Sovereign wideners (5Y): France 27 bp and China 41 bp.

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New Issuance

New Issues New Issues [Continued]
1. Basellandsch KTBK (CHF) 0.375% 5/13/2030 (04/15/2019):180MM Senior Unsecured Notes, Price at Issuance 100.865, Yielding .3%.

ADI Indexes

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DATA CHECK:

iShares Core EUR UCITS iShares Euro High Yield UCITS
NAV as of 04/15/2019, 131.30 NAV as of 04/12/2019, 104.39
Daily NAV Change (%) -0.02% Daily NAV Change (%) +0.05%

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 –0.232%, as of 04/12/2019

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