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European Bond Research – April 26, 2019

Posted on April 26, 2019
NORTHERN IRELAND AND UK ANNOUNCED A FIVE-WEEK PROCESSS aimed at restoring the Northern Ireland Executive and Assembly. The main political parties in Northern Ireland, the UK and Irish governments will all be involvedto re-establish full operation of the democratic institutions. This follows statements from Varadkar that a no-deal scenario would put Ireland in a difficult situation. Senior Conservative Party members are calling on May to limit the Irish backstop to one year or remove it completely.

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THE UK ECONOMY FEELS PRESSURE AS BREXIT LAGS ON. Subdued capital expenditures by businesses has been overlooked as strong employment figures capture opptimism. The tight labourmarket and low investment in capital will likely “accentuate the chronic under-performance of UK productivity,” says Goldmanc Sachs economist. RBS announced CEO Ross McEwan will be stepping down and warned that Brexit uncertainty would cloud the revenue picture in the coming months. Deutsche Bank defers questions on broader strategy as merger talks with Commerzbank is abandonedADI (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,   Lloyds Banking Group PLC (USD) 4.582% 12/10/2025 made some analysts’ ‘Conviction Buy’ lists. (See the chart for Lloyds Banking Group PLC bonds below). Anna Pickett (

Sovereign-Debt Snapshot

Country Maturity (Y) Yield (%) Previous (%) Spread (bp)
Australia 10 1.796 1.796 -73.7
Belgium 10 0.469 0.443 -206.4
France 10 0.371 0.348 -216.2
Germany 10 -0.006 -0.010 -253.9
Italy 10 2.695 2.626 16.2
Japan 10 -0.029 -0.036 -256.2
Netherlands 10 0.176 0.168 -235.7
Portugal 10 1.186 1.171 -134.7
Spain 10 1.092 1.070 -144.1
Sweden 10 0.157 0.238 -237.6
U.K. 10 1.157 1.179 -137.6
U.S. 10 2.533 2.525

Credit-Default Swap Market

LATEST NEWS: Top moves, sovereign tighteners (5Y): Korea 33 bp and China 43 bp. Sovereign wideners (5Y): Austria 12 bp and Ireland 31 bp.

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New Issuance

New Issues New Issues [Continued]
1. ASR Nederland NV (EUR) 3.375% 5/2/2049 (04/25/2019): 500MM Subordinated Notes, Price at Issuance 98.944, Yielding 3.502%.

2. BNP Paribas (USD) 2.545% 7/26/2019 (04/25/2019): 50MM Secured Notes, Price at Issuance 100, Yielding 2.55%.

ADI Indexes

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iShares Core EUR UCITS iShares Euro High Yield UCITS
NAV as of 04/26/2019, 132.08 NAV as of 04/26/2019, 104.04
Daily NAV Change (%) -0.10% Daily NAV Change (%) -0.04%

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 04/25/2019

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