European Bond Research as of November 22, 2017

Posted by Michael F. Brown on Nov 22, 2017 2:52:30 PM
EUROPEAN JUNK BONDS RETAINED SLIGHT FAVOR over their less-risky investment-grade counterparts, as stocks in Europe's bourses stepped modestly higher. A bit less acute German political risk was in the picture, relative to yesterday. The view grew that a return to the Grand Coalition of parties urged by Angela Merkel may be best, despite resistance from the liberal SPD (Social Democratic Party of Germany). This, along with a sharp fresh high in crude-oil prices, led investors in Europe to show a slight preference for risk assets, as WTI (West Texas Intermediate) oil touched its highest close in over two years. European oil firms rose accordingly as gains in Royal Dutch Shell PLC shares added 1.0%, Tullow Oil PLC was up 4.3%, and Total SA was up 1.4%. In other sector cues for bond traders, Akzo Nobel NV shares added 1.4%, Thomas Cook PLC was off 7.7%, as of 4:40 London time.       


Risk-on bias made a modest showing among trades in Europe's corporate debt, even amid choppy trading and light volumes ahead of a holiday 'across the pond.' Acute interest in oil prices was a principal component today, with WTI levels at two-year highs (see notes above) and Nymex prices headed for $58 in afternoon London trading. A decline in U.S. stockpiles drove strength in oil-and-energy corporate bonds as well as equities, amid broad-based gains exemplified by those of Royal Dutch Shell PLC and Total SA PLC(see above). Price Futures Group's Phil Flynn noted, "The oil glut that many had predicted would last forever has suddenly turned into a very tight market." Meanwhile angst over political risk in Germany toned down a notch (notes at top). Dutch paint firm added Akzo Nobel NV added 1.5% amid M&A (Mergers & Acquisitions) news, while Thomas Cook Group PLC tanked 7.7%. ADI (Advantage Data Inc.) extensive corporate-bond index data showed a net daily yield increment for high-grade versus high-yield constituents. High-yield bonds edged out high-grade debt as of 4 PM London time. Among European high-yield bonds showing a concurrence of top price gains, Intelsat Jackson Holdings SA 7.5% 4/1/2021(1)  made some analysts' 'Conviction Buy' lists. (See the chart for EDP Finance bonds, above.)

Topics: bonds, bond market, corporate bonds

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