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High Yield Bond Research – April 29, 2019

Posted on April 29, 2019
JUNK BONDS ROSE AGAINST INVESTMENT GRADE DEBT as investors anticipate a sound jobs report showing growth despite the rocky start to 2019. Gold edged lower as positive Chinese economic data revealed industrial firms reported a rise in profits for the first time in four months. The S&P 500 and NASDAQ closed at record highs lifted by more positive earnings. The 10-year note rose 2.6 basis points.S&P +0.11%, DOW +0.04%, NASDAQ +0.19%.
CONSUMER SPENDING ROSE BY 0.7 PERCENT in March aided by an uptick in vehicle purchases and January’s number was revised up to 0.3 percent. “The economy is in a sweet spot for now with not enough inflation to cause the Fed to raise rates, and with inflation not low enough to worry Fed officials that economic demand is weakening, which could require rate cuts”.  Inflation held steady at 1.6 percent according to the Personal Consumer Expenditures (PCE) Price Index.  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,   Barclays PLC (USD) 4.375% 9/11/2024 made analysts’ ‘Conviction Buy’ lists. (See the chart for Barclays PLC bonds below.) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Staples Inc. 7.5% 4/15/2026 144A + 1.1%
  Royal Bank of Scotland Group PLC VAR% 5/15/2023 + 0.2%
–   Enbridge Inc. VAR% 3/1/2089 -0.2%
Moss Creek Resources LLC   10.5% 5/15/2027 144A
Staples Inc.   7.5% 4/15/2026 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.02% -0.37% 0.41% 4.17% 7.14% 6.65%
Mining -0.12% 0.01% 2.10% 4.49% 9.76% 4.72%
Construction 0.11% 0.02% 1.89% 5.13% 7.85% 5.28%
Manufacturing 0.04% 0.18% 1.37% 4.60% 7.79% 6.65%
Transportion, Communication, Electric/Gas 0.05% 0.13% 1.78% 5.53% 7.80% 6.87%
Wholesale -0.00% 0.14% 1.30% 4.11% 7.85% 5.03%
Retail 0.05% 0.16% 2.37% 5.57% 9.69% 7.43%
Finance, Insurance, Real-Estate 0.06% 0.15% 1.15% 4.21% 7.51% 6.73%
Services 0.04% 0.13% 1.25% 4.02% 7.87% 7.29%
Public Administration 0.02% 0.02% 0.33% 2.98% 6.12% 10.31%
Energy -0.07% 0.10% 2.15% 4.88% 9.82% 4.40%
Total returns (non-annualized) by rating, market weighted.

unnamed - 2019-04-29T170622.634

New Issues Forward Calendar
1. Moss Creek Resources LLC (USD) 10.5% 5/15/2027 144A (04/29/2019): 500MM Senior Unsecured Notes, Price at Issuance 100, Yielding 10.5%. 1. Calpine Corp.: $1.4B bonds, Expected Q2 2019

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

Additional Commentary

NEW ISSUANCE WATCH: on 4/29/19 participants welcome a $500MM new corporate-bond offering by
Moss Creek Resources LLC.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 4/26/19, with a net outflow of $0.520B, year-to-date $13.8B 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)
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:

  • 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 04/29/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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