European Bond Research – March 28, 2019

EUROZONE ECONOMIC MOOD EASES MORE THAN EXPECTED IN MARCH, bodes ill for the first quarter. Sentiment in the eurozone weakened due to a bleaker outlook among manufacturers and services. Businesses confidence continues to suffer as the economic sentiment index settled at 105.5 points in March from 106.2 in February. Also, the business climate index, which points out the phase of the business cycle declined to 0.53 in March from 0.69 in February. Global bond yields continued in a downward spiral trend on recession fears causing the Turkish currency, Lira to contract 5 percent. The latest plunge in German bond yields appeared to stagnate after a vicious drop on Wednesday. The ECB is devising a plan to support side-effects of negative interest rates. The UK 10-year Gilt decreased one basis points. FTSE 100, +0.59%, STOXX Europe 600 -0.10%, CAC 40 -0.07%, German DAX +0.09%.

HALF OF the GERMAN FIRMS DOING BUSINESS IN BRITAIN ARE UNPREPARED FOR BREXITbecause they don’t know what form Britain’s “planned departure” will entail.  “All scenarios are still on the table, which is difficult for companies to prepare for,” stated Andras Gluz, Managing Partner at KPMG.  EU says it needs a Brexit ‘yes’ from UK parliament or else Brexit will only be postponed until April 12.  Among European high-grade bonds showing a concurrence of top price gains at appreciable volumes traded, Barclays PLC (USD) 3.2% 8/10/2021 made some analysts’ ‘Conviction Buy’ lists. (See the chart for Barclays PLC bonds below). Niral Mehta (nmehta@advantagedata.com).

Country	Maturity (Y)	Yield (%)	Previous (%)	Spread (bp)
Australia	10	1.787	1.836	-59.1
Belgium	10	0.393	0.456	-198.5
France	10	0.298	0.358	-208.0
Germany	10	-0.078	-0.014	-245.6
Italy	10	2.438	2.470		6.0
Japan	10	-0.066	-0.065	-244.4
Netherlands	10	0.019	0.082	-235.9
Portugal	10	1.258	1.292	-112.0
Spain	10	1.048	1.094	-133.0
Sweden	10	0.154	0.224	-222.4
U.K.	10	1.015	1.009	-136.3
U.S.	10	2.378	2.422	…

LATEST NEWS: Top moves, sovereign tighteners (5Y): Finland 13 bp and Panama 69 bp. Sovereign wideners (5Y):  Sweden 11 bp and Korea 33 bp.

New Issues	New Issues [Continued]
1. AerCap Ireland Capital LTD (USD) 4.45% 4/3/2026 (03/27/2019):500MM Senior Unsecured Notes, Price at Issuance 99.869, Yielding 4.47%. 2. Santander Consumer Bank AS (DKK) FLT% 4/2/2022 (03/27/2019):750MM Senior Unsecured Notes. 3. Nordic Investment Bank (SEK) 0.125% 3/22/2022 (03/27/2019):1000MM Senior Unsecured Notes.

DATA CHECK:

iShares Core EUR UCITS	iShares Euro High Yield UCITS
NAV as of 03/28/2019, 131.04	NAV as of 03/28/2019, 103.01
Daily NAV Change (%) -0.07%	Daily NAV Change (%) +0.07%

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 rate: currently 7.8% (seasonally adjusted, January 2019)
• Eurostat’s quarterly GDP: 0.2% (2018 Q3 Final)
• 6-month Euribor: current value –0.227%, as of 03/27/2019

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