European Bond Research as of January 17, 2017

Posted by Molly Housel on Jan 17, 2017 2:18:04 PM
Molly Housel
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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.

Telecom Italia Capital SA (USD) Chart

Investment-grade bonds drew fresh favor, easily outpacing high-yield names in net price gains linked to actual trades. A principal factor in today's market dynamic, fallout from a pullback in the U.S. dollar, extended to the European front. Statements from President-elect Donald Trump referring to the native currency as "too strong", particularly in view of China's constraints ensuring a low valuation of its currency, sent the greenback down relative to its major peers. Dollar short positions were taken by investors as a cautionary move. The impact of this news was only partially offset by statements from Theresa May, promising a parliamentary vote on the details of a Brexit (British exit) from the EU (European Union). Corporate-bond investors also took sector cues from gains in shares of Lufthansa and pullbacks in BHP Billiton and retailer Zalando. ADI (Advantage Data Inc.) extensive corporate-bond index data showed a net daily yield increment for investment-grade versus high-yield constituents. Investment-grade bonds strongly outpaced high-yield debt in overall net price gains, linked to actual trades. Among European investment-grade bonds showing a concurrence of top price gains with appreciable volumes traded, Vodafone Group PLC 2.5% 9/26/2022 made some analysts' 'Conviction Buy' lists.

M. F. Brown 

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Topics: High Yield, Investment Grade, debt

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