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European Bond Research – April 17, 2019

Posted on April 17, 2019
GERMANY ONCE AGAIN CHOPS ITS 2019 GROWTH FORECAST for the second time in three months to 0.5 percent from 1 percent.  Weak demand abroad has pushed German manufacturing into a recessionmeanwhile domestic demand is booming aided by record high employment.  BDI Managing Director Joachim Lang acknowledges the state of the German economy, “The best times for the economy are over”.  The 10-year Gilt rose 1.6 basis points.   FTSE 100 -0.04%, German DAX +0.48%,  CAC 40 +0.49%, STOXX Europe 600 +0.07%

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THE EUROPEAN UNION RELEASED A LIST of U.S. imports worth $20 billion imposing tariffs in response to the White House proposing a large list of EU products for tariffs.  EU Trade Commissioner Cecilia Malmstrom remains optimistic, “The EU remains open for discussions with the U.S., provided these are without preconditions and aim at a fair outcome”.  House prices in South East England fell for the first time since 2011 dipping 1.8 percent heightening concerns of the shaky Britain housing market as prices across Britain as a whole increased at their slowest rate in six years.  ADI (Advantage Data Inc.) extensive corporate-bond index data showed a net daily yield increment for high-grade versus high-yield constituents. High-yield bonds edged out high-grade debt as of 3 PM, London time.  Among European high-yield bonds showing a concurrence of top price gains at appreciable volumes traded,  Petrobras Global Finance BV (USD) 8.75% 5/23/2026 made some analysts’ ‘Conviction Buy’ lists. (See the chart for Petrobras Global Finance BV bonds below). Corey Mahoney (cmahoney@advantagedata.com).

Sovereign-Debt Snapshot

Country Maturity (Y) Yield (%) Previous (%) Spread (bp)
Australia 10 1.943 1.961 -65.2
Belgium 10 0.512 0.514 -208.3
France 10 0.419 0.419 -217.5
Germany 10 0.071 0.060 -252.4
Italy 10 2.448 2.437 -14.7
Japan 10 -0.020 -0.030 -261.4
Netherlands 10 0.143 0.140 -245.1
Portugal 10 1.197 1.202 -139.7
Spain 10 1.086 1.081 -150.9
Sweden 10 0.270 0.282 -232.5
U.K. 10 1.222 1.222 -137.2
U.S. 10 2.594 2.552

Credit-Default Swap Market

LATEST NEWS: Top moves, sovereign tighteners (5Y): France 27 bp and UK 28 bp. Sovereign wideners (5Y): Korea 31 bp and Ireland 31 bp.

New Issuance

New Issues New Issues [Continued]
1. Navig8 Topco Hldg Inc. (USD) 12% 5/3/2023 (04/16/2019): 100MM Secured Notes, Price at Issuance 100, Yielding 12%.

2. WMG Acquisition Corp. (EUR) 3.625% 10/15/2026 (04/16/2019):195MM Secured Notes, Price at Issuance 103.875, Yielding 3.04%.

ADI Indexes

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DATA CHECK:

iShares Core EUR UCITS iShares Euro High Yield UCITS
NAV as of 04/17/2019, 131.39 NAV as of 04/17/2019, 104.63
Daily NAV Change (%) -0.08% Daily NAV Change (%) +0.02%

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 04/16/2019

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