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High Yield Bond Research – April 5, 2019

Posted on April 5, 2019
U.S. EMPLOYMENT ACCELERATED IN MARCH growing by 196,000 jobs rebounding from a 17-month low in February. “This was a Goldilocks report, with a rebound in job growth to calm fears of an imminent recession, and wage growth that was solid enough without triggering inflationary concerns,”said Curt Long, chief economist at the National Association of Federally-Insured Credit Unions.  10-year Treasury note shed 2.2 basis points. Equities rise to six month highs amid strong economic data, S&P+0.44%, DOW +0.18%, NASDAQ +0.58%
THE TREASURY YIELD CURVE FLATTENS as a positive jobs report and subdue inflation bring investors previously on the sidelines back into the market purchasing longer dated treasuries.  “We are seeing adisconnect between the stock and the bond markets that the bond market thinks we are going to have arecession and the stock market is acting like the worst is over.”  The New York Fed raised the second quarter GDP growth to 1.92 percent up from last weeks calculated growth rate of 1.62 percent.  In addition, NYC Fed President John Williams said “.  From the perspective of monetary policy things are going very well” and “The outlook is positive”. 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% 7/15/2035 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI Indices ) Corey Mahoney cmahoney@advantagedata.com).
Key Gainers and Losers Volume Leaders
+   HCA Inc. 5.5% 6/15/2047 + 0.2%
  General Motors Financial Co. Inc. 3.2% 7/13/2020 + 0.1%
–   Discover Bank 7% 4/15/2020 -0.0%
Pacific Gas & Electric Co.   6.05% 3/1/2034
General Motors Financial Co. Inc.   3.2% 7/13/2020
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.13% 0.59% 2.29% 8.31% 8.34% 8.04%
Mining -0.05% 0.74% 0.95% 6.02% 7.89% 2.72%
Construction -0.01% 0.44% 1.90% 6.34% 7.10% 5.22%
Manufacturing -0.00% 0.41% 1.10% 5.78% 6.58% 5.90%
Transportion, Communication, Electric/Gas 0.04% 0.40% 1.42% 5.49% 6.50% 6.51%
Wholesale 0.01% 0.32% 1.06% 6.67% 7.48% 4.64%
Retail -0.02% 0.73% 1.55% 6.91% 8.14% 6.03%
Finance, Insurance, Real-Estate 0.03% 0.33% 1.30% 6.00% 6.76% 5.94%
Services 0.05% 0.52% 1.17% 6.27% 7.21% 6.91%
Public Administration -0.09% 0.23% 0.64% 5.20% 5.82% 11.23%
Energy -0.12% 0.52% 0.89% 5.87% 7.63% 2.55%
 
Total returns (non-annualized) by rating, market weighted.

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New Issues Forward Calendar
1. EnLink Midstream Partners LP (USD) 5.375% 6/1/2029 (04/04/2019): 500MM Senior Unsecured Notes, Price at Issuance 100, Yielding 5.38%.

2. NGL Energy Partners LP (USD) 7.5% 4/15/2026 Reg S (04/05/2019): 450MM Senior Unsecured Notes, Price at Issuance 100, Yielding 7.5%.

1. E.W. Scripps: $1.85B term loans and unsecured debt, Expected Q1 2019

2. Staples Inc. : $750M secured debt and $1.375B unsecured debt, Expected Q1 2019

Additional Commentary

NEW ISSUANCE WATCH: on 4/05/19 participants welcome a $400MM new corporate-bond offering by
Owl Rock Capital Corp.  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)
Hertz Corp. (5Y Sen USD XR14)
Hovnanian Enterprises Inc. (5Y Sen USD MR14)
Cable & Wireless Communication (5Y Sen USD CR14)
SuperValu Inc. (5Y Sen USD XR14)

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Loans and Credit Market Overview

SYNDICATED LOANS HIGHLIGHTS:

Deals recently freed for secondary trading, notable secondary activity:

  • Crossamerica Partners LP, Ryman Healthcare Group, FLIR Systems Inc., Kirby Corp.

OVERALL CREDIT MARKET:
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 04/05/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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