European Bond Research as of September 29, 2017

Posted by Michael F. Brown on Sep 29, 2017 1:07:25 PM
CAUTION KEPT PRICES IN A THIN CHANNEL for both high-yield and investment-grade bonds in Europe, headed into the weekend. Extended strength in financials was seen today, lifting the pan-European Stoxx 600 index; Deutsche Bank AG, Commerzbank AG, and Societe Generale shares all posted gains, reaffirming an upside trend seen for most of the week. Meanwhile an extended weak euro helped export-sensitive groups, although today the carmaker sector took a hit, following Volkswagen AG stock lower by 0.4% at one point, as Porsche AS AG also fluctuated south.              


Investment-grade bonds slightly outpaced junk debt on the European trading front, amid profit-taking in the financial sector and diverging views on the Federal Reserve's policy in the coming months. Weakness in the euro supported export-sensitive securities, helping send the Stoxx 600 to another session of upside moves, as financials continued strong. In addition to share gains in the three major European banks cited above (top paragraph), ABN Amro Group NV and Credit Suisse Group AG shares fluctuated higher, even as profit-takers sold off positions after a robust rally stroked by optimism of higher global lending rates.  However, inflation data continued to come in soft in Europe and elsewhere, as overall euro-region inflation held at 1.5% in September, while in the U.S. inflation remained a major obstacle to full-fledged rate hikes. Today attention by many investors was focused on the automaker sector, as Volkswagen AG shares tanked another 0.4%, leading Porsche AS AG lower initially, as well. ADI (Advantage Data Inc.) extensive corporate-bond index data showed a net daily yield increment for high-yield versus investment-grade constituents. Investment-grade bonds edged out high-yield debt  in net prices, as of 4 PM, London time. Among European high-grade bonds showing a concurrence of top price gains at appreciable volumes traded, Vodafone Group PLC 2.95% 2/19/2023 made some analysts' 'Conviction Buy' lists. (See the chart for Weatherford International bonds, above.)  

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