“The chart library has a number of wonderful charts titled GBP Euro finance/bank - 10 year. Are these European banks or UK banks? If they are European banks why are the spread charts denominated in GBP? Credit spreads are really important at this time and I would like to understand these charts. Thank You”

Eoin Treacy's view Thank you for this question which may be of interest to other subscribers. The credit indices found in the Chart Library are generally based on Bloomberg Fair Value (BFV) curves. For an issuer to be included in a BFV Index, the relevant bond needs to have a Bloomberg Generic Price (BGN) which requires at least three different pricing sources. For an issuer to be included in the Euro Bank/Finance Index it needs to have a European operation which is issuing bonds and in this case those bonds need to be denominated in British Pounds. This is why the GBP indices are spread over Gilts in the Chart Library.

For example, the BFV GBP Euro Finance (AA) 10-year is made up of bonds issued by GE, Massachusetts Mutual Life Insurance, Svensk Exportkredit AB and Toyota among others. Therefore the performance of this index relative to UK Gilts reflects how the British Pound denominated debt of AA rated Banks and Financials globally is perceived by the wider market. The spread suggests demand for UK Gilts is increasing faster than for the sterling denominated bonds of the above companies.

The Euro Composite AA Index is composed of Euro denominated bonds from issuers such as GE, Deutsche Bank Finance, Total Fina, OeBB Infrastruktur AG, Kranken IMMO, Allianz, Deutsche Boerse, SEB AG, NRW Bank, Achmean BV, Westdeutsche Immo and Landesbank Hessen-Theuringen Girozentrale. The Index's spread over German Bunds continues to contract highlighting the comparative health of corporate balance sheets compared to those of European sovereigns.