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European Bond Research – March 21, 2019

Posted on March 21, 2019
BANK OF ENGLAND KEEPS RATES ON HOLD AT 0.75 PERCENT AS BUSINESSES “BRACE” FOR possible no-deal Brexit.  “The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal,” the BoE said.  Brexit uncertainty has created volatility in British asset prices and sterling is impairing businesses confidence and investment.  Inflation is running below the BoE’s 2 percent target, which is one rationale on not raising rates; allowing borrowing costs to be low-cost.  Banking shares had risen earlier this week on signs of a merger between Deutsche Bank and Commerzbank being officialized soon.  Bundesbank sees no “credit crunch” after Brexit.  The UK 10-year Gilt declined 10 basis points. FTSE 100, +1.05%, STOXX Europe 600 +0.12%, CAC 40 +0.19%, German DAX -0.26%.

TOP BANKERS BACK LONDON AS FINANCIAL HUB whatever Brexit outcome may be. Barclays chairman John McFarlane stated, “He is confident that London would remain a global financial center, it is imperative we avoid a no-deal Brexit.”  Norman Blackwell, Chairman of Lloyds said, “Brexit is an opportunity for regulatory stability.”  Consumer spending has been a source of strength for the economy, Thursday’s data resonated sales volumes in February rose 0.4 percent.  Falling inflation, a steady rise in wages and the lowest unemployment since 1975 have “boosted” household incomes over the past year. 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, BP Capital Markets Plc (USD) 3.814% 2/10/2024 made some analysts’ ‘Conviction Buy’ lists. (See the chart for BP Capital Markets Plc bonds below). Niral Mehta (nmehta@advantagedata.com).

Sovereign-Debt Snapshot

Country Maturity (Y) Yield (%) Previous (%) Spread (bp)
Australia 10 1.948 1.945 -59.1
Belgium 10 0.525 0.538 -201.4
France 10 0.455 0.471 -208.3
Germany 10 0.086 0.099 -245.3
Italy 10 2.518 2.489 -2.1
Japan 10 -0.035 -0.045 -257.4
Netherlands 10 0.173 0.194 -236.5
Portugal 10 1.314 1.302 -122.5
Spain 10 1.157 1.174 -138.2
Sweden 10 0.325 0.333 -221.4
U.K. 10 1.158 1.188 -138.1
U.S. 10 2.539 2.619

Credit-Default Swap Market

LATEST NEWS: Top moves, sovereign tighteners (5Y): Demark 11 bp and Indonesia 105 bp. Sovereign wideners (5Y): Belgium 25 bp and France 28 bp.

New Issuance

New Issues New Issues [Continued]
1. Royal Bank of Scotland Group PLC (USD) 4.269% 3/22/2025 (03/20/2019): 2000MM Senior Unsecured Notes, Price at Issuance 100, Yielding 4.27%.

2. Nykredit Realkredit AS (EUR) 0.5% 1/19/2022 (03/20/2019): 75MM Senior Non Preferred Notes.

3. Skipton Building Society (GBP) FLT% 2/22/2024 (03/20/2019):600MM Secured Notes.

ADI Indexes

DATA CHECK:

iShares Core EUR UCITS iShares Euro High Yield UCITS
NAV as of 03/21/2019, 130.63 NAV as of 03/21/2019, 102.92
Daily NAV Change (%) +0.14% Daily NAV Change (%) +0.10%

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 –0.231%, as of 03/20/2019

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