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European Bond Research – March 22, 2019

Posted on March 22, 2019
EUROZONE BUSINESSES GROWTH IS WORSE THAN EXPECTED IN MARCH as factory activity contracted at the “fastest” pace in nearly six years, suffered by a substantial drop in demand.  The manufacturing PMI sank to 47.6 from February’s 49.3. In addition, the new orders index dropped to 44.5 from 44.6, a level not seen since the end of 2012.  Germany manufacturing further weakened on unresolved trade disputes and exacerbating slowdown in Europe.  “The German manufacturing recession is getting worse,” said Andrew Kenningham at Capital Economics. IHS Markit stated, “The first-quarter GDP grew by 0.2 percent, below the 0.3 percent prediction.” This supports the ECB’s decision on pushing out its rate hike until 2020 at the earliest to help revive the economy.  The UK 10-year Gilt declined basis points. FTSE 100, -2.00%, STOXX Europe 600 -1.10%, CAC 40 -1.83%, German DAX -1.20%.

GERMAN POLITICIANS UNCERTAIN ABOUT EFFICACY OF THE DEUTSCHE BANK AND COMMERZBANK merger. Both banks have been struggling to stay “afloat” with many layoffs occurring, meanwhile, their shares have lost approximately 80% in market share value.  “It is not clear how putting two sick banks together will result in a healthy one,” stated Cansel Kiziltepe, a Social Democrat lawmaker. German Chancellor, Merkel has not commented on whether she approves of the merger or not.  Among European high-grade bonds showing a concurrence of top price gains at appreciable volumes traded, Barclays PLC (USD) 5.2% 5/12/2026 made some analysts’ ‘Conviction Buy’ lists. (See the chart for Barclays PLC bonds below). Niral Mehta (nmehta@advantagedata.com).

Sovereign-Debt Snapshot

Country Maturity (Y) Yield (%) Previous (%) Spread (bp)
Australia 10 1.889 1.948 -64.5
Belgium 10 0.471 0.525 -206.3
France 10 0.402 0.455 -213.2
Germany 10 0.044 0.086 -249.1
Italy 10 2.451 2.518 -8.3
Japan 10 -0.035 -0.035 -256.9
Netherlands 10 0.131 0.173 -240.4
Portugal 10 1.280 1.314 -125.4
Spain 10 1.099 1.157 -143.5
Sweden 10 0.278 0.325 -225.6
U.K. 10 1.067 1.158 -146.8
U.S. 10 2.534 2.525

Credit-Default Swap Market

LATEST NEWS: Top moves, sovereign tighteners (5Y): Belgium 25 bp and Dubai 125 bp. Sovereign wideners (5Y): France 28 bp and Denmark 11 bp.

New Issuance

New Issues New Issues [Continued]
1. Canara Bank (USD) 3.875% 3/28/2024 (03/21/2019): 400MM Senior Unsecured Notes.

2. Royal Bank of Scotland Group PLC (GBP) 3.125% 3/28/2027 (03/21/2019): 500MM Senior Unsecured Notes, Price at Issuance 99.347, Yielding 3.231%.

3. Erste Group Bank AG (EUR) 0% 3/22/2029 (03/21/2019): 50MM Unsecured Notes, Price at Issuance 100, Yielding 0%.

ADI Indexes

DATA CHECK:

iShares Core EUR UCITS iShares Euro High Yield UCITS
NAV as of 03/22/2019, 130.73 NAV as of 03/22/2019, 102.69
Daily NAV Change (%) -0.02% Daily NAV Change (%) -0.31%

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 –0.229%, as of 03/21/2019

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