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High Yield Bond Research – April 2, 2019

Posted on April 2, 2019
INVESTMENT-GRADE DEBT EDGED OUT JUNK BONDS in net prices linked to actual trades.  U.S. Treasury yields slipped as investors turned bearish following Brexit reigniting fears of uncertainty.  The U.K. Prime Minister Theresa May will “request a further postponement of Brexit” seeking to break the standoff in Parliament.  Equities on Tuesday wavered upon investors fleeing to safe-haven assets. The 10-year Treasury note declined 3.6 basis points. S&P +0.06%, DOW -0.27%, NASDAQ +0.31%
LEVERAGED LOANS SAW the highest percentage returns since 2010 despite significant outflows and weak performance in March.  “There has been more volatility in the secondary loan market and that has been driven by outflows in the first three months of the year. It’s pretty rare for one quarter to see such movement that is technically driven”. Durable goods orders dipped 1.6 percent in February in the result of fewer aircraft orders and decelerating defense-related speeding, in addition, data from January was revised lower.  Business investment softened by 0.1 percent mirroring consumer confidence growing a slim 2.6 percent year-to-date compared to last year’s pace of 10 percent. 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,  Norfolk Southern Corp (USD) 7.05% 5/1/2037  made analysts’ ‘Conviction Buy’ lists. (See the chart for  ADI Indices above)   Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Range Resources Corp. 4.875% 5/15/2025 + 0.3%
  AmeriGas Partners LP 5.75% 5/20/2027 + 5.7%
–   Petrobras Global Finance BV 8.75% 5/23/2026 -1.2%
AmeriGas Partners LP   5.875% 8/20/2026
Charter Communications Operating LLC   5.75% 4/1/2048
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.28% -0.34% 1.92% 7.64% 7.64% 7.70%
Mining 0.18% 0.95% 0.75% 7.57% 7.57% 2.63%
Construction 0.13% 0.82% 1.82% 6.57% 6.57% 4.36%
Manufacturing 0.11% 0.52% 1.04% 6.70% 6.70% 5.81%
Transportion, Communication, Electric/Gas 0.02% 0.68% 1.32% 6.40% 6.40% 6.48%
Wholesale 0.08% 0.47% 0.59% 6.65% 6.65% 3.79%
Retail 0.11% 0.61% 1.02% 8.08% 8.08% 5.61%
Finance, Insurance, Real-Estate -0.01% 0.30% 1.13% 6.61% 6.61% 5.89%
Services 0.09% 0.50% 0.91% 6.58% 6.58% 6.39%
Public Administration 0.02% 0.33% 0.53% 5.77% 5.77% 11.01%
Energy 0.09% 0.83% 0.79% 7.34% 7.34% 2.39%
Total returns (non-annualized) by rating, market weighted.

New Issues Forward Calendar
1. JBS USA LLC (USD) 6.5% 4/15/2029 144A (04/01/2019): 1000MM Senior Unsecured Notes, Price at Issuance 100, Yielding 6.5%.

2. Sable Intl. Finance LTD (USD) 5.75% 9/7/2027 144A (04/02/2019):400MM Secured Notes, Price at Issuance 99.195, Yielding 5.87%.

1. ADT Inc.: $2.75B, Expected Q2 2019

2. Starwood Property Trust Inc: $300M senior notes, Expected Q1 2019

Additional Commentary

NEW ISSUANCE WATCH: on 4/01/19 participants welcome a $1000MM new corporate-bond offering by
JBS USA LLC.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 3/29/19, with a net inflow of $0.589B, year-to-date $10.6B flowed into high-yield.
Top Widening Credit Default Swaps (CDS) Top Narrowing Credit Default Swaps (CDS)
Rite Aid Corp. (5Y Sen USD XR14)
Weatherford International LTD (5Y Sen USD MR14)
Cable & Wireless Communication (5Y Sen USD CR14)
SuperValu Inc. (5Y Sen USD MR14)

Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • FLIR Systems Inc., Kirby Corp., Syneos Health, Inc., Fred Olsen Wind LTD, Carbonite Inc

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 22 bp (basis points), as of 04/02/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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