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European Bond Research – May 2, 2019

Posted on May 2, 2019
LLOYDS BANK REPORTED STRONG FIRST QUARTER EARNINGS but shares fell due to a decline in home loans and borrowing from businesses as confidence softens. European equities settled lower after the U.S. Fed’s dovish tone yesterday announcing “transitory factors” caused subdued inflation. The 10-year Gilt rose 0.3 basis points. FTSE 100 -0.38%, German DAX +0.17%, CAC 40 -0.64%, STOXX Europe 600 -0.46%.

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EUROZONE MANUFACTURING CONTRACTED FOR THE THIRD STRAIGHT MONTH, meanwhile, manufacturing continues to expand in the United States.  Weak global demand remains a key issue hurting the European manufacturing sector.  On Thursday Bank of England, Governor Mark Carney state investors are overlooking how much interest rates could rise.  Analysts continue to overplay the Brexit situation, ”Brexit is really painting the Bank of England into a corner at the moment,”. During the conference, the BoE was optimistic in regards to growth and increased the growth forecast to 1.5 percent from 1.2 percent. 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,   HSBC Holdings PLC (USD) 2.95% 5/25/2021 made some analysts’ ‘Conviction Buy’ lists. (See the chart for HSBC Holdings PLC bonds below). Corey Mahoney (cmahoney@advantagedata.com).

Sovereign-Debt Snapshot

Country Maturity (Y) Yield (%) Previous (%) Spread (bp)
Australia 10 1.791 1.799 -72.2
Belgium 10 0.446 0.446 -206.7
France 10 0.368 0.368 -214.5
Germany 10 0.016 0.016 -249.7
Italy 10 2.566 2.566 5.3
Japan 10 -0.029 -0.029 -254.2
Netherlands 10 0.190 0.190 -232.3
Portugal 10 1.113 1.113 -140.0
Spain 10 1.005 1.005 -150.8
Sweden 10 0.162 0.162 -235.1
U.K. 10 1.153 1.188 -136.0
U.S. 10 2.513 2.502

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. Credit Suisse Group (USD) 3.142% 4/9/2023 (05/01/2019): 100MM Senior Unsecured Notes.

2. Erste Group Bank AG (EUR) FLT% 5/13/2030 (05/02/2019): 50MM Senior Unsecured Notes, Price at Issuance 100.

ADI Indexes

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DATA CHECK:

iShares Core EUR UCITS iShares Euro High Yield UCITS
NAV as of 05/02/2019, 131.99 NAV as of 05/02/2019, 104.03
Daily NAV Change (%) -0.08% Daily NAV Change (%) -0.28%

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 7.7% (seasonally adjusted, March 2019)
  • Eurostat’s quarterly GDP: 0.4% (2019 Q1 Preliminary)
  • 6-month Euribor: current value –0.231%, as of 05/01/2019

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Information in this document should not be regarded as an offer to sell or solicitation of an offer to buy bonds or any financial instruments referred to herein. All information provided in this document is believed to be accurate. However, Advantage Data and its sources make no warranties, either express or implied, as to any matter whatsoever, including but not limited to warranties of merchantability or fitness for a particular purpose. Opinions in this document are subject to change without notice. Electronic redistribution, photocopying and any other electronic or mechanical reproduction is strictly prohibited without prior written permission from Advantage Data Inc.


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