Think

'RISK-ON' BIAS TOOK AN UPTURN as increased bids for yield over quality ushered in, on the heels of yesterday's May Day holiday. This bias was fed in large part by strong euro-zone factory data, with manufacturing PMI coming in at a six-year high in April. Solid gains in Europe's equities were important elements in today's market, as the U.K.'s heavyweight oil firm BP PLC posted a 2.9% gain in shares, while Ocado Group PLC jumped 8.9% on M&A news. Meanwhile the pan-European Stoxx 600 moved to a 'sea of green', as gains in the financial and energy sectors rounded out the firmer market tone.

CAUTION AMID BREXIT PROCEEDINGS  prevailed, keeping European  investment-grade bonds with a svelte edge in net price gains linked to actual trades. Resistance to major gains in risk assets - including equities and junk debt - ensued after U.K. Prime Minister Theresa May pulled the trigger on official exit from the European Union, invoking Article 50 of the Treaty of Lisbon. The resulting drawdown in the British pound helped buoy the U.K.'s FTSE index, while high-yield bonds in the mining sector drew strength from a 2.7% gain in BHP Billiton shares.

FLUCTUATIONS AROUND THE NEUTRAL LINE were observed for prices of a spectrum of corporate bonds, on the European trading front. Political risk linked to France was toned down, after a strong showing by French centrist candidate Immanuel Macron, outpacing far-right populist Marine Le Pen in an initial debate. The euro gained relative to its peers, while Italian banks notched higher amid the view that Le Pen's momentum proposing a French exit exit from the EU (European Union) took a hit. Banco BPM, Intesa Sanpaolo, and Unicredit SpA shares all posted share gains, while independently Deutsche Bank AG added 2.4%. Gains in Akzo Nobel NV and a pullback in Belgium's UCB shares also provided sector cues.

CAUTIONARY STANCES ABOUNDED among traders in European corporate bonds as central-bank and political moves loomed, with the Fed and a key Dutch election imminent. An interest-rate hike from 'across the pond' in the U.S. is, by consensus, nearly certain. A key political outcome in the Netherlands also motivated caution, with far-right candidate Geert Wilders' popularity likely to presage voting strength for France's Marine Le Pen. As New York trading was in part hamstrung by a mid-March blizzard, gains in Europe's RWE AG and Ocado PLC lent sector cues to bond traders. 

SENTIMENT REMAINED CAUTIOUS, in an extension of yesterday's risk-averse mode. Sideways trending of prices remained in force for many corporate bonds, as investors awaited monetary-policy moves from the ECB (European Central Bank) and Federal Reserve. A defensive tone was abetted nonetheless by disappointing manufacturing data out of Germany, with factory orders sliding 7.4% in January. Meanwhile Aggreko PLC shares tanked 13% as of 4 PM London time, Groupe Casino SA dropped 5.2%, and Just Eat PLC moved up 5.9%, lending sector cues to corporate-bond traders.

ADI (Advantage Data Inc.) extensive corporate-bond index data showed a net daily yield increment for high-yield versus investment-grade constituents. High-yield bonds edged out high-grade debt in overall net price gains linked to actual trades. Among European high-grade bonds showing a concurrence of top price gains at appreciable volumes traded, AerCap Ireland Capital LTD 3.95% 2/1/2022 made some analysts' 'Conviction Buy' lists. Subscribe to ADI Market Summaries for more detailed corporate-bond analysis.