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European Bond Research – March 20, 2019

Posted on March 20, 2019
GERMANY IS IN A “STRONG” POSITION to weather Brexit and trade shocks, stated by Finance Minister Olaf Scholz. The country has solid public finances and a “vibrant” domestic economy to cope with headwinds. German cabinet authorizes a budget for 2020 that calls for 1.7 percent spending hikewithout issuing new debt. The Spanish economy expanded in early 2019, “stronger-than-expected domestic demand offset a slowdown in exports”. Spanish GDP grew 0.6 percent in January, to maintain this growth, the Bank of Spain noted reducing public deficit and debt to protect the economy against future shocks. Assets worth around a trillion pounds is moving from London to hubs in the European Union ahead of Brexit. The UK 10-year Gilt declined three basis points. FTSE 100, -0.16%, STOXX Europe 600 -0.68%, CAC 40 -0.47%, German DAX -1.34%.

AQUIS EXCHANGE DECLARED BREXIT CLASH could damage the stock market by creating larger spreads on securities and affecting price levels. Aquis, Cboe Europe, and CME have migrated operations to Paris to avoid disruption to customers from Brexit. Aquis accounts for about 4 percent of pan-European share trading. While the UK remains divided over Brexit, most agree “it will shape the economic future of generations to come,” threatening London’s position as the dominant global financial capital. 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, Shell International Finance BV (USD) 4% 5/10/2046 made some analysts’ ‘Conviction Buy’ lists. (See the chart for Shell Finance Bonds BV below). Niral Mehta (

Sovereign-Debt Snapshot

Country Maturity (Y) Yield (%) Previous (%) Spread (bp)
Australia 10 1.945 1.993 -66.6
Belgium 10 0.538 0.521 -207.3
France 10 0.471 0.453 -213.9
Germany 10 0.099 0.087 -251.1
Italy 10 2.489 2.425 -12.1
Japan 10 -0.045 -0.036 -265.6
Netherlands 10 0.194 0.171 -241.7
Portugal 10 1.302 1.258 -130.9
Spain 10 1.174 1.151 -143.6
Sweden 10 0.333 0.327 -227.7
U.K. 10 1.188 1.198 -142.3
U.S. 10 2.611 2.608

Credit-Default Swap Market

LATEST NEWS: Top moves, sovereign tighteners (5Y): Belgium 23 bp and Ireland 34 bp. Sovereign wideners (5Y): China 44 bp and Korea 28 bp.

New Issuance

New Issues New Issues [Continued]
1. Toyota Motor Finance (Netherlands) BV (EUR) FLT% 3/28/2022 (03/19/2019): 300MM Senior Unsecured Notes.

2. Landmark Funding 2019 LTD (USD) 4.5% 3/26/2022 (03/19/2019):450MM First Lien Notes.

ADI Indexes


iShares Core EUR UCITS iShares Euro High Yield UCITS
NAV as of 03/20/2019, 130.42 NAV as of 03/20/2019, 102.84
Daily NAV Change (%) -0.17% Daily NAV Change (%) -0.36%

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 –0.232%, as of 03/19/2019

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