European Bond Research - June 13, 2019

EUROZONE CREDITORS FOREWARN THAT GREECE is in danger of missing its budget targets, therefore, risk of falling short of its agreed upon commitment last year. “We are concerned that the fiscal measures adopted last month put the fiscal target of the primary surplus of 3.5% of GDP at risk.” Investors remain optimistic as Greek stocks surge meanwhile Greek bond yields plummet to record lows. FTSE 100 -0.07%, German DAX +0.37%, CAC 40 +0.02%, STOXX Europe 600 +0.15%. The 10-year Gilt dropped 3.2 basis points.

NON-PERFORMING LOANS WITHIN THE EUROPEAN UNION are regressing to near pre-crisis levels declining 3.3 percent in the third quarter of 2018.  According to the EU Commission, “Despite clear improvements, high ratios of NPLs do remain a challenge in some member states and deserve continued attention”.  Industrial output in Germany dragged the eurozone production lower in April for the second consecutive month slipping 0.5 percent month-over-month.  Automotive production fellsignificantly particular in the UK which experienced its largest drop on record. 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, Actavis Funding SCS (USD) 4.55% 3/15/2035 made some analysts' 'Conviction Buy' lists. (See the chart for Actavis Funding SCS bonds below). Corey Mahoney (cmahoney@advantagedata.com).

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	...

LATEST NEWS: Top moves, sovereign tighteners (5Y): France 27 bp and Germany 12 bp. Sovereign wideners (5Y): Korea 33 bp and Denmark 12 bp.

New Issues	New Issues [Continued]
1. International Game Technology (EUR) 3.5% 6/15/2026 (06/12/2019): 750MM Secured Notes, Price at Issuance 100, Yielding 3.5%. 2. JP Morgan Chase Bank NA (EUR) FLT% 6/18/2021 (06/12/2019):301MM Unsecured Notes.

DATA CHECK:

iShares Core EUR UCITS	iShares Euro High Yield UCITS
NAV as of 06/13/2019, 132.56	NAV as of 06/13/2019, 103.58
Daily NAV Change (%) -0.05%	Daily NAV Change (%) +0.10%

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 -0.259%, as of 06/12/2019

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