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High Yield Bond Research – March 18, 2019

Posted on March 18, 2019
INVESTMENT-GRADE DEBT EDGED OUT HIGH-YIELD DEBT in net prices linked to actual trades as investors carry over concerns about a slowing economy from last week.  The market will keep a keen eye on the Fed meeting this week expecting no rate moves and a continued “patient” monetary policy stance.  Treasury yields ticked higher in anticipation of changes with the FOMC’s dot plot disclosing individual members’ opinions on rates.  The 10-year U.S. Treasury note rose 1.4 basis point.  S&P +0.24%, Dow+0.12%, NASDAQ +0.22%
HOMEBUILDING SENTIMENT IN MARCH REMAINED UNCHANGED from the previous month as “builders report the market is stabilizing following the slowdown at the end of 2018, and they anticipate a solid spring home buying season”.  Analysts hypothesize a rising “mismatch between the demographics of new households” and preferences they can afford are negatively affecting the housing market.  In addition, the average home size considerably increased over the past decade pricing new home buyers out of the market.  Boeing shares slipped nearly another 2 percent amid a federal investigation regarding the approval of the anti-stall software in the 737 MAX.  Shares have tumbled 10 percent since the deadly crash on March 10th in Ethiopia. ADI proprietary index data showed a net yield increment for high-yield versus high-grade. High-grade edged out high-yield. Among high-grade bonds showing topmost price gains at appreciable volumes traded, Comcast Corp. (USD) 4.2% 8/15/2034 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI indexes above) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Prime Security Service 9.25% 5/15/2023 144A + 0.1%
  Millicom Intl. Cellular SA 6.25% 3/25/2029 144A + 0.1%
–   Rite Aid Corp. 6.125% 4/1/2023 144A -0.2%
Prime Security Service   9.25% 5/15/2023 144A
Intelsat Connect Finance   9.5% 2/15/2023 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.04% 0.47% 1.76% 5.06% 4.55% 3.68%
Mining 0.18% 0.76% 0.05% 3.06% 6.55% 1.94%
Construction 0.07% 0.54% 1.27% 4.75% 5.55% 3.72%
Manufacturing 0.12% 0.63% 1.09% 4.45% 5.69% 4.97%
Transportion, Communication, Electric/Gas 0.12% 0.74% 1.45% 3.74% 5.22% 5.03%
Wholesale 0.03% 0.47% 1.02% 4.04% 5.75% 4.03%
Retail 0.05% 0.54% 0.99% 4.46% 7.01% 2.35%
Finance, Insurance, Real-Estate 0.09% 0.62% 1.10% 4.68% 5.87% 5.42%
Services 0.01% 0.51% 1.07% 4.43% 6.39% 5.30%
Public Administration 0.03% 0.21% 0.90% 2.72% 2.23% 22.20%
Energy 0.16% 0.73% 0.13% 3.06% 6.31% 2.15%
Total returns (non-annualized) by rating, market weighted.

New Issues Forward Calendar
1. Panther BF Aggregator 2 LP Panther Finance Co. Inc. (USD) 6.25% 5/15/2026 144A (03/18/2019): 1000MM Secured Notes, Price at Issuance 100, Yielding 6.25%.

2. Panther BF Aggregator 2 LP Panther Finance Co. Inc. (USD) 8.5% 5/15/2027 144A (03/18/2019): 1950MM Senior Unsecured Notes, Price at Issuance 100, Yielding 8.5%.

1. ADT Inc.: $2.75B, Expected Q2 2019

2. Twinset Spa: ¬170M 5 year senior secured floating-rate notes, Expected Q1 2019

Additional Commentary

NEW ISSUANCE WATCH: on 3/18/19 participants welcome an $85MM new corporate-bond offering by
Westmoreland Coal Co.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 3/15/19, with a net inflow of $1.0B, year-to-date $8.2B 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)
Road King Infrastructure LTD (5Y Sen USD MR14)
San Miguel Corp. (5Y Sen USD CR14)

Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • TruGreen LP, PetVet Care Centers LLC, XPO Logistics Inc., MYOB LTD, Dell International

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 19 bp (basis points), as of 03/18/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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