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High Yield Bond Research – April 26, 2019

Posted on April 26, 2019
US ECONOMY GROWS BY 3.2% IN FIRST QUARTER, beating expectations. Retailers boosted strong sales gains in March, contributing to the pickup in consumer spending; contrary there was a slowdown in spending on services as well as automobiles. Residential construction fell at a 2.8 percent rate, making it the fifth straight quarterly decline.
U.S. DURABLE GOODS ORDERS JUMPED 2.7 PERCENT in March, exceeding expectations of a 0.8 percent increase.  Orders grew at the fastest rate in seven-months aided by strong demand for autos and planes, orders for commercial aircraft spiked 30 percent alone.  “A strong increase in core capital goods orders is a positive sign for rising business investment into the second quarter, consistent with our view that 2019 will be another year of solid activity,” stated Andrew Hollenhorst, an economist of Citibank.  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,   Ford Motor Co. (USD) 5.291% 12/8/2046 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI Indexes above.) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Sprint Nextel Corp. 7.875% 9/15/2023 + 0.8%
  Teva Pharmaceuticals Fin BV 6.75% 3/1/2028 + 0.5%
–   CenturyLink Inc. 7.5% 4/1/2024 -0.1%
Western Digital Corp.   4.75% 2/15/2026
Chesapeake Energy Corp.   7% 10/1/2024
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.43% -0.36% 0.35% 4.33% 7.17% 6.39%
Mining -0.12% 0.16% 2.54% 4.84% 10.12% 5.06%
Construction -0.10% -0.09% 1.78% 5.06% 7.89% 5.23%
Manufacturing -0.03% 0.14% 1.42% 4.44% 7.66% 6.52%
Transportion, Communication, Electric/Gas -0.05% 0.07% 1.70% 5.31% 7.61% 7.04%
Wholesale 0.02% 0.15% 1.26% 4.17% 7.86% 5.12%
Retail 0.01% 0.12% 2.50% 5.75% 9.89% 7.53%
Finance, Insurance, Real-Estate -0.04% 0.10% 1.04% 4.17% 7.47% 6.80%
Services -0.06% 0.11% 1.24% 4.06% 7.84% 7.68%
Public Administration -0.19% 0.02% 0.64% 2.98% 6.10% 10.20%
Energy -0.09% 0.20% 2.45% 4.85% 9.81% 4.28%
Total returns (non-annualized) by rating, market weighted.

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New Issues Forward Calendar
1. Adient US LLC (USD) 7% 5/15/2026 144A (04/25/2019): 800MM Secured Notes, Price at Issuance 100, Yielding 7%.

2. Truck Hero Inc (USD) 8.5% 4/21/2024 (04/26/2019): 335MM First Lien Notes, Price at Issuance 100, Yielding 8.5%.

1. Twin River Management Group Inc.: $350M bonds, Expected Q2 2019

2. General Electric Distributed Power: $600M high-yield bonds, Expected Q2 2019 

Additional Commentary

NEW ISSUANCE WATCH: on 4/26/19 participants welcome a $75MM new corporate-bond offering by
Xplornet Communications  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)
Road King Infrastructure LTD (5Y Sen USD MR14)
Cable & Wireless Communication (5Y Sen USD CR14)

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Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • JBS USA LLC, Sundyne US Purchaser, Prysmian, Project Maple II BV, Trade Me Group LTD

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 04/26/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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