European Bond Research - March 26, 2019

UK BANKS APPROVE FEWEST MORTGAGES IN SIX YEARS as Brexit nears. Seasonally-adjusted data from the UK Finance industry “resonated” with banks approving a lean 35,200 mortgages last month, the smallest number since April 2013. Overall consumer credit growth also decelerated only rising 3.8 percent in February compared to an expected 4.5% increase. After a few years of “ultra-easy monetary policy,” including negative interest rates and an unprecedented 2.6 trillion euro asset purchase program, economic growth is weakening again. Inflation is below 2 percent and Germany’s 10-year bond yield has dropped back under zero, signaling a recession fear. German consumer morale deteriorated heading into April, suggesting that household spending might weaken in the second quarter.  The UK 10-year Gilt increased two basis points. FTSE 100, +0.39%, STOXX Europe 600 +0.76%, CAC 40 +0.88%, German DAX +0.62%.

NO DEAL BREXIT WILL NOT DISRUPT GAS AND POWER flows from Europe.  “We anticipate no additional operability challenges for this summer as a result of the UK’s planned exit from the EU,” National Grid said in its Summer outlook.  British “imports around 5-6 percent of its electricity via interconnectors with continental Europe.”  Among European high-grade bonds showing a concurrence of top price gains at appreciable volumes traded, Barclays PLC (USD) 3.684% 1/10/2023 made some analysts' 'Conviction Buy' lists. (See the chart for Barclays PLC bonds below). Niral Mehta (nmehta@advantagedata.com).

Country	Maturity (Y)	Yield (%)	Previous (%)	Spread (bp)
Australia	10	1.791	1.844	-62.2
Belgium	10	0.441	0.430	-197.2
France	10	0.358	0.345	-205.5
Germany	10	-0.026	-0.011	-243.9
Italy	10	2.509	2.450		9.6
Japan	10	-0.084	-0.073	-249.7
Netherlands	10	0.070	0.071	-234.4
Portugal	10	1.288	1.260	-112.6
Spain	10	1.106	1.071	-130.8
Sweden	10	0.238	0.212	-217.5
U.K.	10	0.988	1.016	-142.6
U.S.	10	2.413	2.442	...

LATEST NEWS: Top moves, sovereign tighteners (5Y): Belgium 25 bp and Dubai 126 bp. Sovereign wideners (5Y): Denmark 11 bp and Greece 363 bp.

New Issues	New Issues [Continued]
1. Erste Group Bank AG (EUR) 0.5% 3/26/2026 (03/25/2019): 50MM Senior Unsecured Notes, Price at Issuance 100, Yielding .5%. 2. Arla Foods Finance AS (SEK) FLT% 4/3/2024 (03/25/2019):750MM Senior Unsecured Notes, Price at Issuance 100. 3. Banque Cantonale de Geneve (CHF) 0.125% 4/23/2026 (03/25/2019): 120MM Senior Unsecured Notes, Price at Issuance 100.419, Yielding .07%.

DATA CHECK:

iShares Core EUR UCITS	iShares Euro High Yield UCITS
NAV as of 03/26/2019, 130.71	NAV as of 03/26/2019, 102.91
Daily NAV Change (%) +0.03%	Daily NAV Change (%) +0.30%

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 7.8% (seasonally adjusted, January 2019)
• Eurostat's quarterly GDP: 0.2% (2018 Q3 Final)
• 6-month Euribor: current value -0.228%, as of 03/25/2019

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