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European Bond Research – May 1, 2019

Posted on May 1, 2019
EUROPEAN EQUITIES SETTLED MIXED with light trading volumes as European markets are observing Labour Day. The European Central Bank fears Deutsche Bank is at risk of failing U.S. stress tests. The bank has struggled to appease investors after unproductive merger talks with Commerzbank. The 10-year Gilt lost 2.3 basis points.  FTSE 100 -0.35%, German DAX +0.13%, CAC 40 +0.10%, STOXX Europe 600 -0.05%.

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U.K. MANUFACTURING DECLINED to a two-month low of 53.1 in April compared to 55.1 in March; analysts expected PMI to come in at 53.  “The upturn in the UK manufacturing sector eased at the start of the second quarter…There were also reports of overseas clients acting now to re-route their supply chains away from the UK in advance of Brexit.”  The collateral damage associated with Brexit is becoming evident and as uncertainties persist businesses will continue to mitigate risk.  U.K. house prices ticked 0.4 percent higher in April an increase from the 0.2 percent rise in March.  It appears buyers are braving uncertainties related to Brexit aided by the lowest interest rates in more than 40 years. ADI (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,   AerCap Ireland Capital LTD (USD) 3.65% 7/21/2027 made some analysts’ ‘Conviction Buy’ lists. (See the chart for AerCap Ireland Capital LTDbonds below). Corey Mahoney (

Sovereign-Debt Snapshot

Country Maturity (Y) Yield (%) Previous (%) Spread (bp)
Australia 10 1.799 1.800 -70.5
Belgium 10 0.446 0.457 -205.8
France 10 0.368 0.364 -213.6
Germany 10 0.016 0.007 -248.8
Italy 10 2.566 2.582 6.2
Japan 10 -0.029 -0.029 -253.3
Netherlands 10 0.190 0.181 -231.4
Portugal 10 1.113 1.124 -139.1
Spain 10 1.005 1.010 -149.9
Sweden 10 0.162 0.147 -234.2
U.K. 10 1.188 1.159 -131.6
U.S. 10 2.504 2.527

Credit-Default Swap Market

LATEST NEWS: Top moves, sovereign tighteners (5Y): France 28 bp and UK 28 bp. Sovereign wideners (5Y): Korea 32 bp and China 41 bp.

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New Issuance

New Issues New Issues [Continued]
1. Bank of America Corp. (EUR) 0.808% 5/9/2026 (04/30/2019):1250MM Senior Unsecured Notes.

2. Guardian Life Global Funding (USD) 2.9% 5/6/2024 Reg S (04/30/2019): 300MM Secured Notes, Price at Issuance 99.894, Yielding 2.92%.

ADI Indexes

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iShares Core EUR UCITS iShares Euro High Yield UCITS
NAV as of 05/01/2019, 132.11 NAV as of 05/01/2019, 104.25
Daily NAV Change (%) +0.08% Daily NAV Change (%) -0.08%

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 7.7% (seasonally adjusted, March 2019)
  • Eurostat’s quarterly GDP: 0.4% (2019 Q1 Preliminary)
  • 6-month Euribor: current value –0.231%, as of 04/30/2019

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