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High Yield Bond Research – April 12, 2019

Posted on April 12, 2019
RISK-ON SENTIMENT INTENSIFIED FOLLOWING A SLEW OF POSITIVE EARNINGS as the Dow Jones Industrial Average spiked 230 points.   J.P. Morgan and Disney were among the companies that reported on Friday, J.P. Morgan announced the “impact of higher rates” elevated earnings, JPM closed 4.5 percent higher.  Disney surged 11 percent after revealing a rival streaming service to Netflix.  Economic concerns have dissipated, “Strength in [JPMorgan’s] consumer franchise shows that despite the uncertainty in the fourth quarter of last year, consumers continue to spend and give strength to the overall U.S. economy”10-year Treasury note rose 6.4 basis points. S&P +0.64%, DOW +0.96%, NASDAQ +0.44%.
U.S. TREASURY YIELDS SETTLED HIGHER upon favorable global economic data and an uptick of exports from China.  “Treasuries are on their back foot to close out the week, an unsurprising development given stronger-than-expected data out of both China…and the Eurozone,” Jon Hill, an interest-rate strategist at BMO Capital Markets. The U.S. Justice Department slapped GE with a $1.5 billion fine since they concealed the skimpy quality of loans when packaging them into residential mortgage-backed securities. ADI proprietary index data showed a net yield increment for high-yield versus high-grade bonds.  High-yield edged out high-grade. Among high-yield bonds showing topmost price gains at appreciable volumes traded,  Pacific Gas & Electric Co. (USD) 4.3% 3/15/2045 made analysts’ ‘Conviction Buy’ lists. (See the chart for Pacific Gas & Electric Co. bonds below.) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   First Quantum Minerals LTD 6.875% 3/1/2026 144A + 0.8%
  Staples Inc. 10.75% 4/15/2027 144A + 0.4%
–   Wand Merger Corp. 8.125% 7/15/2023 144A -0.1%
Staples Inc.   10.75% 4/15/2027 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.18% 0.51% 2.09% 5.42% 7.06% 5.41%
Mining 0.06% 0.52% 2.49% 4.16% 8.86% 3.07%
Construction 0.12% 0.58% 2.71% 5.08% 7.59% 4.43%
Manufacturing 0.15% 0.50% 1.98% 4.82% 7.24% 5.83%
Transportion, Communication, Electric/Gas 0.18% 0.46% 2.10% 4.89% 7.04% 6.92%
Wholesale 0.11% 0.46% 1.51% 4.94% 7.23% 4.23%
Retail 0.18% 0.66% 2.83% 6.31% 9.56% 6.29%
Finance, Insurance, Real-Estate 0.06% 0.47% 1.84% 4.67% 7.21% 6.15%
Services 0.15% 0.52% 1.88% 4.93% 7.72% 6.87%
Public Administration -0.19% 0.02% 0.74% 3.42% 5.84% 10.45%
Energy 0.05% 0.46% 2.21% 4.19% 8.32% 2.91%
Total returns (non-annualized) by rating, market weighted.

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New Issues Forward Calendar
1. Vedanta Resources PLC (USD) 8% 4/23/2023 144A (04/11/2019):400MM Unsecured Notes, Price at Issuance 100, Yielding 8%. 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 4/11/19 participants welcome a $600MM new corporate-bond offering by
Vedanta Resources PLC.  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 MR14)
Cable & Wireless Communication (5Y Sen USD CR14)
Atmos Energy Corp. (5Y Sen USD MR14)

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Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • Six Flags Inc., 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 18 bp (basis points), as of 04/12/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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