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European Bond Research – April 2, 2019

Posted on April 2, 2019
BANK OF ENGLAND TO EXTEND BREXIT LIQUIDITY AUCTIONS UNTIL END OF JUNE, providing smooth market conditions given Britain leaves the European Union.  “The bank will continue to monitor growth and market liquidity on a daily basis, and stands ready to take additional action if necessary.”  The EU has placed a series of contingency measures to deal with a no-deal Brexit; including a temporaryrecognition of Britain-based clearing houses which processes multi-trillion euro derivatives transactions.  The euro fell below $1.12 as U.S. economic data outperforms expectations.  The pound fell half a percent after lawmakers rejected four Brexit proposals. The UK 10-year Gilt declined four basis points. FTSE 100, +1.08%, STOXX Europe 600 +1.68%, CAC 40 +0.41%, German DAX +0.77%.

FORD IS SPENDING TENS OF MILLIONS in EUROS PREPARING FOR A POSSIBLE BREXIT EXIT from the European Union.  Ford has announced 5,000 job cuts in Germany, its second-biggest European market.  Ford stated, “We’ve been clear with the government in the UK and also in Brussels, we have to maintain frictionless trade at the borders and tariff-free trade to maintain stability.”  Among European investment grade-yield bonds showing a concurrence of top price gains at appreciable volumes traded, Rio HSBC Holdings PLC (USD) 3.4% 3/8/2021 made some analysts’ ‘Conviction Buy’ lists. (See the chart for  HSBC Holdings PLC bonds below). Niral Mehta (nmehta@advantagedata.com).

Sovereign-Debt Snapshot

Country Maturity (Y) Yield (%) Previous (%) Spread (bp)
Australia 10 1.813 1.790 -68.7
Belgium 10 0.460 0.414 -203.9
France 10 0.378 0.324 -212.2
Germany 10 -0.025 -0.069 -252.4
Italy 10 2.513 2.481 1.4
Japan 10 -0.078 -0.091 -257.7
Netherlands 10 0.075 0.031 -242.4
Portugal 10 1.275 1.248 -122.4
Spain 10 1.143 1.098 -135.6
Sweden 10 0.197 0.173 -230.2
U.K. 10 1.048 0.997 -145.1
U.S. 10 2.499 2.406

Credit-Default Swap Market

LATEST NEWS: Top moves, sovereign tighteners (5Y): Italy 206 bp and China 43 bp. Sovereign wideners (5Y):  Ireland 37 bp and Belgium 25 bp.

New Issuance

New Issues New Issues [Continued]
1. NRW Bank (EUR) 0.175% 4/15/2026 (04/01/2019): 100MM Senior Unsecured Notes, Price at Issuance 100, Yielding .18%.

2. Volvo Treasury AB (SEK) FLT% 4/6/2023 (04/01/2019): 1000MM Senior Unsecured Notes.

ADI Indexes

DATA CHECK:

iShares Core EUR UCITS iShares Euro High Yield UCITS
NAV as of 04/02/2019, 131.28 NAV as of 04/02/2019, 103.77
Daily NAV Change (%) +0.02% Daily NAV Change (%) +0.29%

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, January 2019)
  • Eurostat’s quarterly GDP: 0.2% (2018 Q3 Final)
  • 6-month Euribor: current value –0.228%, as of 04/01/2019

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