European Bond Research - August 5, 2019

EUROPEAN EQUITIES CONTINUE TO TUMBLE ON MONDAY as the Chinese yuan breached the critical 7 per dollar level for the first time in a decade. “The fact that they have now stopped defending 7.00 against the dollar suggests that they have all but abandoned hopes for a trade deal with the U.S.”Analysts suspect China is controlling its currency as retaliation for recent plans by the US to hike tariffs an additional 10 percent. FTSE 100 -2.71%, German DAX -1.93%, CAC 40 -2.27%, STOXX Europe 600-2.43%.  The 10-year Gilt lost 3.6 basis points.
 

EURO ZONE BUSINESS GROWTH DETERIORATED IN JULY falling to 51.5 closing in on the 50 mark, a pivotal indication of a contracting economy. “The service sector continued to sustain the expansion of the overall eurozone economy at the start of the third quarter, but there are signs that the scale of the manufacturing downturn is starting to overwhelm.” Investor confidence in August slips to five-year lows in the euro area falling to -13.7. 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, AstraZeneca PLC (USD) 6.45% 9/15/2037  made some analysts' 'Conviction Buy' lists. (See the chart for  AstraZeneca PLC bonds  below). Corey Mahoney

 

LATEST NEWS: Top moves, sovereign tighteners (5Y): Italy 172 bp and France 20 bp. Sovereign wideners (5Y): Spain 41 bp and UK 34 bp.

New Issues	New Issues [Continued]
1. Nordea Bank AB (NOK) FLT% 8/12/2022 (08/05/2019): 1400MM Senior Unsecured Notes.

DATA CHECK:

iShares Core EUR UCITS	iShares Euro High Yield UCITS
NAV as of 08/05/2019, 134.65	NAV as of 08/05/2019, 104.5
Daily NAV Change (%) -0.11%	Daily NAV Change (%) -0.37%

OVERALL EUROPEAN CREDIT MARKET:
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 rate: currently 7.5% (seasonally adjusted, May 2019)
• Eurostat's quarterly GDP: 0.4% (2019 Q1)
• 6-month Euribor: current value -0.367%, as of 08/02/2019

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