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High Yield Bond Research – April 10, 2019

Posted on April 10, 2019
INVESTMENT-GRADE DEBT ROSE AGAINST JUNK BONDS in net prices linked to actual trades.  Fed meeting minutes from March released on Wednesday indicated a holding pattern will continue, “A majority of participants expected that the evolution of the economic outlook and risks to the outlook would likely warrant leaving the target range unchanged for the remainder of the year”.  10-year Treasury note declined 3.1 basis points.  S&P +0.27%, DOW -0.06%, NASDAQ -0.61%
THE CONSUMER PRICE INDEX ADVANCED 0.4 PERCENT IN MARCH, the largest jump in 14 months indicating an uptick in inflation.  Energy costs skyrocket driving CPI higher as gasoline surged 10 percent in March alone, in addition, food prices rose 0.3 percent.  Analysts agree, “In the near term, we don’t have an inflation problem” given “Overall we continue to see pretty tame inflation”.  Crude prices were lifted by a dip in gasoline inventories across the U.S., meanwhile, crude supplies increased to their highest levels since November 2017.  Mortgage applications pull back from a two and half year peak declining 5.6 percent from the previous week. ADI proprietary index data showed a net yield increment for high-yield versus high-grade bonds.  High-grade edged out high-yield. Among high-grade bonds showing topmost price gains at appreciable volumes traded,  Becton Dickinson & Co. (USD) 6% 5/15/2039 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI Indices above.) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Petrobras Global Finance BV 7.375% 1/17/2027 + 0.2%
  Tempur Sealy Intl. Inc. 5.5% 6/15/2026 + 0.2%
–   US Steel Corp. 6.875% 8/15/2025 -2.1%
Petrobras Global Finance BV   8.75% 5/23/2026
Petrobras Global Finance BV   7.375% 1/17/2027
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.37% 0.69% 2.46% 5.71% 7.19% 5.82%
Mining 0.03% 0.35% 2.42% 4.03% 8.69% 3.50%
Construction 0.11% 0.33% 2.23% 5.29% 7.51% 5.09%
Manufacturing 0.07% 0.35% 1.88% 4.73% 7.09% 5.92%
Transportion, Communication, Electric/Gas 0.06% 0.44% 2.05% 4.66% 6.86% 6.88%
Wholesale 0.07% 0.19% 1.44% 5.02% 7.28% 4.48%
Retail -0.00% 0.37% 2.08% 5.27% 8.10% 5.06%
Finance, Insurance, Real-Estate 0.06% 0.35% 1.72% 4.76% 7.03% 6.16%
Services 0.02% 0.40% 1.71% 4.45% 7.00% 6.62%
Public Administration 0.12% 0.23% 0.85% 3.52% 6.13% 10.79%
Energy 0.02% 0.23% 2.24% 4.15% 8.33% 3.30%
Total returns (non-annualized) by rating, market weighted.

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New Issues Forward Calendar
1. Staples Inc. (USD) 10.75% 4/15/2027 144A (04/09/2019): 1000MM Senior Unsecured Notes, Price at Issuance 100, Yielding 10.75%.

2. Staples Inc. (USD) 7.5% 4/15/2026 144A (04/09/2019): 2000MM Secured Notes, Price at Issuance 100, Yielding 7.5%.

1. E.W. Scripps: $1.85B term loans and unsecured debt, Expected Q1 2019

2. Twinset Spa: ¬170M 5 year senior secured floating-rate notes, Expected Q1 2019

Additional Commentary

NEW ISSUANCE WATCH: on 4/09/19 participants welcome a $750MM new corporate-bond offering by
Golden Entertainment Inc.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 4/5/19, with a net inflow of $2.0B, year-to-date $12.0B flowed into high-yield.
Top Widening Credit Default Swaps (CDS) Top Narrowing Credit Default Swaps (CDS)
Hertz Corp. (5Y Sen USD XR14)
Hovnanian Enterprises Inc. (5Y Sen USD XR14)
Cable & Wireless Communication (5Y Sen USD CR14)
San Miguel Corp. (5Y Sen USD CR14)

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Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • MW Industries Inc., Ultimate Software Group, Crossamerica Partners LP

Long-term bond yields are expected to hit a cyclical peak in 2019 given tight fiscal policy and lagging global economies. Europe remains checked by stubbornly low inflationary forces.  
Positive effects remained in force:

  • TED spread held below 17 bp (basis points), as of 04/10/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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