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High Yield Bond Research – April 24, 2019

Posted on April 24, 2019
INVESTMENT-GRADE DEBT EDGED OUT JUNK BONDS in net prices linked to actual trades as investors purchase safe-haven assets. Treasury yields dip on soft global economic data stirring up anxiety among investors. The spread between the two and 10-year widened to 21.5 basis points. The 10-year note sank 5.0 basis points. S&P -0.03%, DOW -0.10%, NASDAQ-0.02%.
U.S. MORTGAGE APPLICATIONS DECLINE to post their largest drop in four months as mortgage rates increased to one-month highs.  “The strong economy and job market (are) keeping buyer interest high, but rising mortgage rates could add pressure to the budgets of some would-be buyers,” MBA’s chief economist Mike Fratantoni said in a statement.  June delivery of crude declined 0.77 percent following a report U.S. crude supplies rose by 6.9 million barrels last week; In addition, gasoline inventories rose by 2.2 million barrels.  Domestic crude inventories hit an 18-month high settling lower at $74.37 per barrel. “Overall the report was considered bearish,” said Kyle Cooper, a consultant at ION Energy.  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,   Kraft Heinz Co (USD) 5.2% 7/15/2045 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI Indexes above.) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Park Aerospace Hldgs LTD 5.25% 8/15/2022 144A + 0.0%
  Royal Bank of Scotland Group PLC 4.8% 4/5/2026 + 0.2%
–   Petrobras Global Finance BV 8.75% 5/23/2026 -0.2%
Pacific Gas & Electric Co.   6.05% 3/1/2034
Entertainment Properties Trust   5.75% 8/15/2022
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.05% -0.19% 0.37% 5.10% 8.54% 7.71%
Mining 0.18% 0.20% 2.43% 4.40% 9.76% 3.91%
Construction 0.11% 0.07% 1.92% 5.30% 8.01% 5.39%
Manufacturing 0.07% -0.02% 1.32% 4.59% 7.70% 6.22%
Transportion, Communication, Electric/Gas 0.10% -0.07% 1.62% 5.36% 7.52% 6.54%
Wholesale 0.03% 0.13% 1.25% 4.34% 7.86% 4.57%
Retail 0.05% 0.02% 2.29% 5.25% 9.25% 6.96%
Finance, Insurance, Real-Estate 0.10% 0.02% 1.03% 4.25% 7.33% 6.30%
Services 0.10% -0.16% 1.22% 4.30% 7.77% 7.11%
Public Administration 0.33% 0.58% 0.43% 2.98% 6.28% 10.16%
Energy 0.18% 0.20% 2.40% 4.65% 9.61% 3.43%
Total returns (non-annualized) by rating, market weighted.

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New Issues Forward Calendar
1. Entercom Radio LLC (USD) 6.5% 5/1/2027 144A (04/24/2019):325MM Second Lien Notes, Price at Issuance 100, Yielding 6.5%.

2. Entercom Radio LLC (USD) 6.5% 5/1/2027 Reg S (04/24/2019):325MM Second Lien Notes, Price at Issuance 100, Yielding 6.5%.

1. Starwood Property Trust Inc: $300M senior notes, Expected Q2 2019

2. E.W. Scripps: $1.85B term loans and unsecured debt, Expected Q2 2019

Additional Commentary

NEW ISSUANCE WATCH: on 4/24/19 participants welcome a $325MM new corporate-bond offering by
Entercom Radio LLC.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 4/18/19, with a net inflow of $1.1B, year-to-date $14.4B 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 CR14)
SuperValu Inc. (5Y Sen USD MR14)
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:

  • Prysmian, Project Maple II BV, Trade Me Group LTD, Jane Street, Six Flags 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 15 bp (basis points), as of 04/24/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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