THE FINANCIAL SECTOR OF BRITAIN IS NOT PREPARED for a no-deal Brexit as “residual” preparations are still pending completion, specifically in the insurance sector. An EU executive stated, “if the United Kingdom leaves the European Union without an agreement on 31 October 2019, this will necessarily result in some market fragmentation in financial services”. The UK’s Financial Conduct Authority is concerned banks are leaving too few senior officials in Britain to monitor operations and reduce risk. The EU Commission is also worried banks will not be able to fully implement contingency plans given staff relocations. 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, WPP Finance Corp. (USD) 3.75% 9/19/2024 made some analysts' 'Conviction Buy' lists. (See the chart for WPP Finance Corp. bonds below). Corey Mahoney (cmahoney@advantagedata.com).
Sovereign-Debt Snapshot
| Country | Maturity (Y) | Yield (%) | Previous (%) | Spread (bp) | |
|---|---|---|---|---|---|
| Australia | 10 | 1.482 | 1.482 | -65.6 | |
| Belgium | 10 | 0.204 | 0.155 | -193.3 | |
| France | 10 | 0.136 | 0.082 | -200.1 | |
| Germany | 10 | -0.216 | -0.254 | -235.4 | |
| Italy | 10 | 2.359 | 2.350 | 22.2 | |
| Japan | 10 | -0.121 | -0.115 | -225.8 | |
| Netherlands | 10 | -0.040 | -0.092 | -217.7 | |
| Portugal | 10 | 0.681 | 0.618 | -145.7 | |
| Spain | 10 | 0.605 | 0.551 | -153.2 | |
| Sweden | 10 | -0.054 | -0.081 | -219.1 | |
| U.K. | 10 | 0.843 | 0.817 | -129.4 | |
| U.S. | 10 | 2.137 | 2.085 | ... | |
Credit-Default Swap Market
New Issuance
| New Issues | New Issues [Continued] |
|---|---|
|
1. Luminor Bank AS of Estonia (EUR) 1.375% 10/21/2022 (06/11/2019): 300MM Senior Unsecured Notes, Price at Issuance 99.853, Yielding 1.421%. 2. Karlou BV (USD) 7.75% 6/18/2024 (06/11/2019): 300MM Senior Unsecured Notes, Price at Issuance 100, Yielding 7.75%. |
|
ADI Indexes
| iShares Core EUR UCITS | iShares Euro High Yield UCITS |
| NAV as of 06/12/2019, 132.68 | NAV as of 06/12/2019, 103.59 |
| Daily NAV Change (%) +0.01% | 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 -0.258%, as of 06/11/2019
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