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High Yield Bond Research – April 9, 2019

Posted on April 9, 2019
U.S. THREATENED TO SLAP TARIFFS ON HUNDREDS OF EUROPEAN GOODS dragging stocks lower on Tuesday.  Job openings fell sharply in February by more than a half million slipping to levels not seen in over a year, “Like the rest of the economy, the labor market is not perfectly steady on its feet”.  Gold rose to nearly two-week highs settling above $1307.8 per ounce. 10-year Treasury note dipped 2.5 basis points.  S&P -0.58%, DOW -0.68%, NASDAQ -0.46%
THE INTERNATIONAL MONETARY FUND SLASHES THE GLOBAL GROWTH forecast to the slowest pace since the financial crisis noting Brexit uncertainties and ongoing trade tensions between the U.S. and China.  In a statement, the IMF indicated, “Industrial production figures and surveys of purchasing managers suggest that the slower momentum in global growth during the second half of 2018 is likely to continue in early 2019”.  The IMF is predicting global economic growth of 3.3 percent for 2019 revised from 3.5, as for the U.S. a growth rate of 2.3 percent is expected.  Crude oil retreats from its five-month high settling at $64.07 per barrel as inventories are expected to rise for the week ended April 5, marking the third consecutive week of a rise in supply.  In addition, Russia hinted to increasing outputahead of the June OPEC meeting. 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,  FedEx Corp. (USD) 4.55% 4/1/2046 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI Indices above.) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Oneok Inc. 4.25% 2/1/2022 + 0.2%
  Pacific Gas & Electric Co. 6.05% 3/1/2034 + 1.7%
–   CEC Entertainment Inc. 8% 2/15/2022 -1.1%
Ensco PLC   7.75% 2/1/2026
Ultrapar Intl SA   5.25% 10/6/2026 Reg S
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.10% 0.55% 2.11% 5.19% 6.81% 5.47%
Mining 0.09% 0.29% 2.25% 5.13% 8.70% 3.84%
Construction -0.03% 0.26% 2.13% 5.31% 7.07% 4.79%
Manufacturing -0.01% 0.27% 1.81% 5.00% 6.89% 5.92%
Transportion, Communication, Electric/Gas 0.01% 0.33% 1.89% 5.01% 6.57% 7.05%
Wholesale 0.04% 0.22% 1.53% 5.44% 7.22% 4.49%
Retail -0.01% 0.68% 2.65% 6.42% 9.08% 6.49%
Finance, Insurance, Real-Estate 0.04% 0.33% 1.66% 5.12% 6.80% 5.97%
Services 0.01% 0.35% 1.70% 4.95% 7.37% 6.70%
Public Administration 0.22% 0.23% 0.74% 4.07% 6.01% 10.78%
Energy 0.07% 0.14% 1.98% 4.86% 8.10% 3.63%
Total returns (non-annualized) by rating, market weighted.

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New Issues Forward Calendar
1. Golden Entertainment, Inc. (USD) 7.625% 4/15/2026 Reg S (04/08/2019): 375MM Senior Unsecured Notes, Price at Issuance 100, Yielding 7.63%.

2. Staples Inc. (USD) 7.5% 4/15/2026 144A (04/09/2019): 2000MM Secured Notes, Price at Issuance 100, Yielding 7.5%.

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

Additional Commentary

NEW ISSUANCE WATCH: on 4/09/19 participants welcome a $750MM new corporate-bond offering by
Golden Entertainment Inc.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 4/5/19, with a net inflow of $2.0B, year-to-date $12.0B 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 MR14)

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Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • Ultimate Software Group, Crossamerica Partners LP, Ryman Healthcare Group

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 04/09/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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