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European Bond Research – April 24, 2019

Posted on April 24, 2019
GERMAN BUSINESS CONFIDENCE PLUMMETS to the lowest level in three years implying the European economy is experiencing a further slowdown. The business index dipped to 103.3 despite an estimate of 103.6, “Companies are less satisfied with their current business situation”. France’s manufacturing confidence dropped for the first time in five months hitting a two-and-a-half year low. Equities pulled back from eight-month highs as investors are concerned with China slowing the stimulus. The 10-year Gilt sank 4.5 basis points. FTSE 100 -0.63%, German DAX +0.52%, CAC 40 -0.36%, STOXX Europe 600 -0.08%.

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BRITISH EMPLOYERS ARE BRACING FOR BREXIT, but in the meantime they continue to hire increasing their headcounts.  Firms are hiring a large number of temporary workers in anticipation of any radical shifts due to Brexit, “The more positive figures on hiring for temporary workers suggest that many businesses are turning to agency work to help them navigate the unpredictability they currently face,” chief executive Niel Carberry at REC. Government borrowing in the U.K. sank to a 17 year low clocking in at 24.7 billion GBP, a decline of 17.2 billion GBP from the previous year.   ADI (Advantage Data Inc.) extensive corporate-bond index data showed a net daily yield increment for high-grade versus high-yield constituents. High-grade bonds edged out high-yield debt as of 3 PM, London time.  Among European high-grade bonds showing a concurrence of top price gains at appreciable volumes traded,   HSBC Holdings PLC (USD) 5.25% 3/14/2044 made some analysts’ ‘Conviction Buy’ lists. (See the chart for HSBC Holdings PLC bonds below). Corey Mahoney (

Sovereign-Debt Snapshot

Country Maturity (Y) Yield (%) Previous (%) Spread (bp)
Australia 10 1.905 1.960 -66.6
Belgium 10 0.492 0.462 -207.9
France 10 0.396 0.370 -217.5
Germany 10 0.044 0.026 -252.7
Italy 10 2.678 2.451 10.7
Japan 10 -0.030 -0.026 -260.1
Netherlands 10 0.219 0.102 -235.2
Portugal 10 1.204 1.166 -136.7
Spain 10 1.113 1.061 -145.8
Sweden 10 0.277 0.275 -229.4
U.K. 10 1.227 1.198 -134.4
U.S. 10 2.571 2.593

Credit-Default Swap Market

LATEST NEWS: Top moves, sovereign tighteners (5Y): Denmark 11 bp and Dubai 135 bp. Sovereign wideners (5Y): Germany 12 bp and Korea 31 bp.

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New Issuance

New Issues New Issues [Continued]
1. Davide Campari-Milano SPA (EUR) 1.655% 4/30/2024 (04/23/2019): 150MM Senior Unsecured Notes, Price at Issuance 100, Yielding 1.66%.

2. Mediobanca Di Credito Finanz SpA (USD) 3% 4/26/2022 (04/23/2019): 55MM Senior Unsecured Notes, Price at Issuance 100, Yielding 3%.

3. Wendel (EUR) 1.375% 4/26/2026 (04/23/2019): 300MM Senior Unsecured Notes.

ADI Indexes

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iShares Core EUR UCITS iShares Euro High Yield UCITS
NAV as of 04/24/2019, 132.09 NAV as of 04/24/2019, 104.62
Daily NAV Change (%) +0.31% Daily NAV Change (%) -0.11%

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 –0.230%, as of 04/23/2019

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