European Bond Research - July 1, 2019

EURO ZONE LENDING HELD STEADY IN MAY a relief to many investors fearing an imminent recessionis upon the bloc.  Corporate lending grew at an annual rate of 3.9 percent and household lendingadvanced by 3.3 percent, both expanding at a faster rate than expected.  In spite of the positive report, European Central Bank chief Mario Draghi stated “In the absence of improvement... additional stimulus will be required” hinting to Quantitative Easing. FTSE 100 +1.17%, German DAX +1.18%, CAC 40+0.83%, STOXX Europe 600 +0.86%.  The 10-year Gilt slipped 2.8 basis points.

BRITAIN’S ECONOMY IS FEELING THE PRESSURE of a slowing global economy and domestically Brexit uncertainties.  Economists estimate the economy contracted by 0.2 percent in the span of April to June meanwhile the Bank of England reduced its forecast to zero for the second quarter.  Euro zone factory activity continued to shrink in June and May’s data was revised lower, contracting for the fifth month this year.  “Euro zone manufacturing remained stuck firmly in a steep downturn in June, continuing to contract at one of the steepest rates seen for over six years” ADI (Advantage Data Inc.) extensive corporate-bond index data showed a net daily yield increment for high-yield versus high-grade 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) 3.5% 8/17/2023 made some analysts' 'Conviction Buy' lists. (See the chart for AstraZeneca PLC below). Corey Mahoney (cmahoney@advantagedata.com).

LATEST NEWS: Top moves, sovereign tighteners (5Y): Finland 12 bp and UK 30 bp. Sovereign wideners (5Y): Japan 21 bp and Spain 40 bp.

New Issues	New Issues [Continued]
1. Banque Fed du Credit Mutuel (EUR) 0.125% 2/5/2024 (07/01/2019): 1000MM Senior Unsecured Notes. 2. Bank Julius Baer (Gg) (AUD) 1.01% 10/1/2019 (07/01/2019): 96MM Senior Unsecured Notes, Price at Issuance 100, Yielding 1.01%.

DATA CHECK:

iShares Core EUR UCITS	iShares Euro High Yield UCITS
NAV as of 07/01/2019, 134.29	NAV as of 07/01/2019, 105.32
Daily NAV Change (%) +0.28%	Daily NAV Change (%) +0.22%

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 7.7% (seasonally adjusted, March 2019)
• Eurostat's quarterly GDP: 0.4% (2019 Q1)
• 6-month Euribor: current value -0.311%, as of 06/28/2019

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