EUROPEAN HIGH-YIELD BONDS RETAINED FAVOR - although a narrow one, over a range of investment-grade securities. Disappointing GDP numbers for Germany and the overall euro-bloc weighed upon 'risk-on' trades, as did views of increased French political risk ahead of an upcoming presidential election. Nonetheless, a residual bullish tone after yesterday's resurgence in risk-taking in Europe and 'across the pond' in the U.S. was in play, on the heels of fresh record highs in Dow, S&P 500, and Nasdaq.
'RISK-OFF' SENTIMENT WAS TONED DOWN relative to yesterday's levels, among a spectrum of European corporates. Investment-grade debt edged out junk bonds in net price gains nonetheless, amid continued attention to political risk emanating from 'across the pond' on the U.S. front. Corporate-bond investors took sector cues from gains in Deutsche Bank AG shares, moving up 2.1% before profit-taking set in. Upbeat views on financials were offset a bit by a 3.4% pullback in Italy's UniCredit SpA, as of 4 PM, London time. However, gains in retailer Hennes & Mauritz AB, Ocado Group PLC, and Alfa Laval AB buoyed the pan-European Stoxx 600, limiting its descent into the shallow red.
Expansive tone continued to build regarding a spectrum of risk-assets, leading European junk debt to draw a fresh wave of bids along with equities. A strong showing by the banking sector was kindled by upbeat earnings from Santander SA, sending the Spanish bank's shares up 4.7%. The news carried along a range of other European banks as well, including France's Societe Generale SA and Germany's Deutsche Bank AG. A rally in Logitech International SA, posting share gains of over 15.5% as of 4PM London time and supporting the European tech group, provided additional sector cues to corporate-bond traders.
Defensive bias stepped higher, amid increasing attention by investors to statements by the U.K.'s Theresa May, and the U.S.' Donald Trump. Accordingly, investment-grade bonds easily outpaced junk debt on the European front, reflected in price gains linked to actual trades. High-yield bonds in the banking and retail sectors gave up some of last week's gains, while airline securities followed Lufthansa shares higher.
Abbot Laboratories (NYSE:ABT) saw a series of bond issues downgraded this past week from A2 to Baa3. This rating downgrade follows the aquisition of St Jude Medical Inc. (NYSE:STJ) on January 4th and the concerns that Abbott will struggle with deleveraging in the future. Since the acquisition and downgrade, ADI's CDS screener has shown Abbott Laboratories 5Y Sen USD XR14 CDS (green) drop and then widen to 62 Basis Points. Over the same period, ABT's equity (grey) had been on the rise until a drop yesterday.
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