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High Yield Bond Research – April 15, 2019

Posted on April 15, 2019
JUNK BONDS RETAIN A SLIGHT EDGE OVER INVESTMENT-GRADE DEBT in net prices linked to actual trades despite lackluster bank earnings.  Goldman Sachs sank 3.41 percent upon releasing weaker than expected revenue for the first quarter, meanwhile, Citigroup reported a rise in profit by 2 percent from a year ago lifted by an expansion in U.S. consumer banking.  “Both our consumer and institutional businesses performed well and we saw good momentum in those areas where we have been investing,” stated Chief Executive Mike Corbat.  10-year Treasury note slipped 1.9 basis points. S&P -0.07%, DOW-0.11%, NASDAQ -0.07%.
INVESTORS WILL KEEP A KEEN EYE ON EARNINGS AND ECONOMIC DATA THIS WEEK, watching for any reason to short the market. Chief Market Strategist Quincy Krosby affirmed “Every data release will be monitored and scrutinized by analysts to see if there are stronger underpinnings for the economy”.  On Tuesday the U.S. Federal Reserve releases industrial growth, a critical gauge indicating the direction of the economy. Analysts expect industrial production to have recovered in March. 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) 5.4% 1/15/2040 made analysts’ ‘Conviction Buy’ lists. (See the chart for Pacific Gas & Electric Co. bonds below.) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Altice SA 7.625% 2/15/2025 144A + 0.5%
  Dean Foods Co. 6.5% 3/15/2023 144A + 13.8%
–   Endo Finance LLC 6% 2/1/2025 144A -1.2%
Dean Foods Co.   6.5% 3/15/2023 144A
Valeant Pharmaceuticals Intl. Inc.   9% 12/15/2025 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.03% 0.33% 2.48% 6.96% 8.86% 7.55%
Mining 0.31% 0.71% 2.26% 3.85% 8.67% 2.52%
Construction 0.08% 0.52% 2.36% 5.07% 7.55% 4.98%
Manufacturing 0.09% 0.44% 1.84% 4.87% 7.36% 5.91%
Transportion, Communication, Electric/Gas 0.13% 0.51% 2.11% 5.11% 7.31% 6.25%
Wholesale 0.07% 0.43% 1.47% 5.08% 7.51% 4.25%
Retail 0.13% 0.57% 2.78% 6.72% 9.98% 6.09%
Finance, Insurance, Real-Estate -0.02% 0.38% 1.55% 4.71% 7.29% 6.15%
Services 0.11% 0.50% 1.81% 5.07% 7.88% 7.01%
Public Administration -0.09% 0.02% 0.33% 3.31% 5.75% 10.56%
Energy 0.41% 0.80% 1.97% 3.84% 8.17% 2.13%
Total returns (non-annualized) by rating, market weighted.

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New Issues Forward Calendar


(None Current 04/15/2019)


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 4/12/19 participants welcome a $700MM new corporate-bond offering by
Mineral Resources LTD.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 4/12/19, with a net inflow of $0.655B, year-to-date $13.3B flowed into high-yield.
Top Widening Credit Default Swaps (CDS) Top Narrowing Credit Default Swaps (CDS)
Weatherford International LTD (5Y Sen USD XR14)
Hertz Corp. (5Y Sen USD XR14)
Cable & Wireless Communication (5Y Sen USD CR14)
SuperValu Inc. (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 04/15/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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