Advantage Data High Yield Bond Market Summary

UK HEADED FOR A DOWNTURN AS BREXIT WORRIES   NEGATIVELY   IMPACT SERVICES SECTOR. The PMI, a  barometer of the economy’s health   tumbled to 48.9 in March from 51.3 in February, inducing the sterling to dip to $1.3156.  “A stalling of the economy in the first quarter will create further   stress on the second quarter unless demand revives suddenly, which seems highly improbable with   Brexit looming,” mentioned IHS Markit. “In a no-deal scenario, both the EU and the UK would face a challenge of protecting their single markets,” mentioned   European Commissioner, Pierre Moscovici. The UK 10-year Gilt  increased   seven basis points.  FTSE 100, +0.23%,  STOXX Europe 600 +0. 91%,  CAC 40 +0.76%,  German DAX +1.68%.

BANK OF ENGLAND TO EXTEND BREXIT LIQUIDITY AUCTIONS  UNTIL END OF JUNE, providing smooth   market conditions given Britain leaves the European Union.  “ The bank will continue to monitor growth  and market liquidity on a daily basis, and stands ready to take additional action if necessary.”  The EU has placed a series of   contingency measures  to deal with a no-deal Brexit; including a   temporaryrecognition of Britain-based clearing houses which processes multi-trillion euro   derivatives transactions.  The   euro fell below $1.12 as U.S. economic data outperforms expectations.  The pound fell half a percent after lawmakers rejected four   Brexit proposals. The UK 10-year Gilt declined   four basis points.  FTSE 100, +1.08%,  STOXX Europe 600 +1. 68%,  CAC 40 +0.41%,  German DAX +0.77%.

DEUTSCHE BANK TURNS BEARISH ON THE STERLING AS BREXIT  CHAOS DEEPENS.  The   bank has raised its estimate for the chances of a no-deal   Brexit to 25 percent from 20 percent.  Brexit uncertainty has cost the European Union   600 million pounds per week since the 2016 referendum.  It has cost the world’s fifth largest economy nearly   2.5 percent of GDP, inducing larger economic output losses compared to other countries.  Eurozone inflation   declined, adding to the pressure on the   ECB as it battles economic slowdown.  Although—wages   are rising and employment is at a record high, consumer prices have repeatedly disappointed. “It is likely to remain well   below the ECB’s inflation target of close to 2 percent over the rest of the year." The UK 10-year Gilt increased  four basis points.  FTSE 100, +0.54%,  STOXX Europe 600 +1. 23%,  CAC 40 +1.06%,  German DAX +1.37%.

ECB’S PRESIDENT, MARIO DRAGHI HINTS AT DRAWBACKS OF NEGATIVE RATES AS BANKS START TO WORRY  about the adverse effects of   negative interest rates. Expectations of easier monetary policy have pushed government bond yields below zero, meanwhile,   cheaper cost of borrowing capital has raised risks of housing bubbles  in part of Europe. European bank stocks have fallen around 30% since the start of 2018 since lower interest rates induce compressed profit margins. Rates are expected to stay where there are for many months, laying the foundation for negative interest rates for years to come.  The   ECB targets an annual   inflation of just under 2%, it is currently at 1.5%. The UK 10-year Gilt   declined one basis point. FTSE 100, -0.41%,  STOXX Europe 600 -0.64%,  CAC 40 -0.28%,  German DAX -0.29%. 

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%.

EUROPEAN OFFICIALS STATED A  NO-DEAL BREXIT  IS LIKELY. “ We don’t want a no-deal Brexit, we’d much rather have the Withdrawal Agreement, but if it is a no deal, let’s do it quickly to avoid   larger collateral damage,” mentioned a European official. Exposed countries such as   Ireland and Belgium  are far from prepared for a no-deal Brexit.    The no deal-contingency measures include: EU financial aid program in Northern Ireland, ensuring basic air transportation is not affected and allowing a temporary measure to create a smooth transition in the central clearing of derivatives and depositories.  EU will   honor the entitlement to social security benefits accrued by EU citizens. “It would be a   material shock  for the EU if a no-deal Brexit occurs,” Brian Coulton,   Chief Economist at rating agency Fitch Ratings.  The UK 10-year Gilt   increased one basis point.  FTSE 100, -0.53%,  STOXX Europe 600 -0.49%,  CAC 40 -0.27%,  German DAX -0.22%. 

RISK-OFF SENTIMENT PREVAILED AS INVESTMENT-GRADE DEBT significantly outpaced junk bonds in net prices linked to actual trades.  Equities receded after the release of weak economic data, despite the 11.8 percent increase jump in existing home sales in February.  A cooling trend has emerged, “Homes aren’t flying off the market as they have been” Cheryl Young senior economist at Trulia.  The 10-year U.S. Treasury note plummeted 9.6 basis point.  S&P -1.90%, Dow -1.77%, NASDAQ -2.50%