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European Bond Research – May 3, 2019

Posted on May 3, 2019
BRITAIN’S SERVICES SECTOR EXPANDED IN APRIL despite weak demand and ongoing uncertaintyaround Brexit; the PMI index rose to 50.4 from last month’s two year low of 48.9. European equities bounce back supported by solid bank earningsSociet General soared 4 percent as the bank’s capital ratio held steady at 11.7 offsetting a 26 percent nosedive in net profit. The 10-year Gilt rose 1.9 basis points. FTSE 100 +0.48%, German DAX +0.40%, CAC 40 +0.12%, STOXX Europe 600 +0.38%.

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HSBC REPORTED A SPIKE IN NET PROFIT rising 31 percent from one year prior, strong revenue growth” on the retail side attributed to the increase in profit. HSBC’s CFO Ewwn Stevenson expressed concerns with regards to the U.K. market, “If there’s one market in the world we’re watching closely for credit it would be the U.K. We have been growing the top line nicely but obviously Brexit uncertainty creates issues for business and consumer confidence and that’s what we’re seeing”. Michel Barnier the European Union’s Brexit negotiator stated “EU-27 stand united and ready for orderly Brexit”.  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,   Societe Generale (USD) 5.625% 11/24/2045 Reg S made some analysts’ ‘Conviction Buy’ lists. (See the chart for Societe Generale bonds below). Corey Mahoney (

Sovereign-Debt Snapshot

Country Maturity (Y) Yield (%) Previous (%) Spread (bp)
Australia 10 1.797 1.791 -74.9
Belgium 10 0.466 0.446 -208.0
France 10 0.374 0.368 -217.2
Germany 10 0.032 0.016 -251.4
Italy 10 2.554 2.566 0.8
Japan 10 -0.029 -0.029 -257.5
Netherlands 10 0.201 0.190 -234.6
Portugal 10 1.113 1.113 -143.3
Spain 10 0.992 1.005 -155.5
Sweden 10 0.155 0.162 -239.1
U.K. 10 1.189 1.153 -135.7
U.S. 10 2.546 2.503

Credit-Default Swap Market

LATEST NEWS: Top moves, sovereign tighteners (5Y): Spain 53 bp and UK 28 bp. Sovereign wideners (5Y): Germany 11 bp and Ireland 30 bp.

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New Issuance

New Issues New Issues [Continued]
1. Hypo Noe Landesbank AG (CHF) 0.1% 11/27/2024 (05/02/2019):100MM Senior Unsecured Notes, Price at Issuance 100.021, Yielding .1%.

2. Silver Spring Asset Funding PLC (USD) 7% 5/7/2020 (05/02/2019):200MM Senior Unsecured Notes, Price at Issuance 100, Yielding 7%.

ADI Indexes

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iShares Core EUR UCITS iShares Euro High Yield UCITS
NAV as of 05/03/2019, 132.04 NAV as of 05/03/2019, 104.01
Daily NAV Change (%) +0.04% Daily NAV Change (%) -0.02%

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 –0.232%, as of 05/02/2019

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