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High Yield Bond Research – March 20, 2019

Posted on March 20, 2019
THE FEDERAL RESERVE ABANDONS PLANS TO RAISE RATES IN 2019 dramatically shifting to a very dovish stance on economic policy.  Jerome Powell reaffirmed his “patient” stance citing muted inflation, in addition, the Fed will terminate its balance sheet reductions in September. Powell stated, “I think we’re in a good place right now. We’re being patient, we’re watching, we don’t see any data pushing us to move rates in any direction. We’re going to watch carefully and patiently to allow events to evolve. And when they do clarify, we will act appropriately.”  The 10-year U.S. Treasury note sank 8 basis point.  S&P -0.29%, Dow -0.55%, NASDAQ +0.07%
TREASURY PRICES RALLIED AS YIELDS DIPPED UPON INVESTORS BECOMING PESSIMISTIC over the state of the economy. The Fed’s dot plot, a closely watched report by investor’s revealed members are feeling dovish over the long-term. Mortgage applications rise to a two month high as rates fall sparking an increase of home buying and refinancing.  Crude oil shoots higher closing above $60 a barrel following data revealing a tightening supply, April delivery of crude settled 1.85% higher at $60.12 a barrel. Stockpiles dropped by 9.6 million barrels week over week compared to an estimated increase of 300,000 barrels.  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, Johnson & Johnson (USD) 3.4% 1/15/2038 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI indexes above)  Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Navios Maritime Hldg Inc. 11.25% 8/15/2022 144A + 1.5%
–   Tronox Inc. 6.5% 4/15/2026 144A -0.5%
Inmarsat Finance PLC   6.5% 10/1/2024 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.60% 0.97% 2.49% 5.51% 5.54% 4.88%
Mining 0.10% 0.54% 0.29% 5.34% 7.14% 2.88%
Construction 0.21% 0.66% 1.15% 4.77% 5.53% 3.31%
Manufacturing 0.10% 0.49% 1.14% 4.85% 5.87% 5.09%
Transportion, Communication, Electric/Gas 0.07% 0.52% 1.52% 4.52% 5.46% 5.36%
Wholesale 0.01% 0.33% 0.87% 4.31% 5.47% 3.98%
Retail 0.08% 0.55% 1.15% 6.21% 8.03% 4.26%
Finance, Insurance, Real-Estate 0.05% 0.46% 1.30% 5.10% 5.92% 5.56%
Services 0.07% 0.37% 0.86% 4.74% 5.82% 5.12%
Public Administration -0.07% 0.14% 1.68% 4.98% 5.13% 9.57%
Energy 0.09% 0.50% 0.34% 5.06% 6.92% 2.91%
Total returns (non-annualized) by rating, market weighted.

New Issues Forward Calendar


(None Current 03/20/2019)


1. ADT Inc.: $2.75B, Expected Q2 2019

2. Starwood Property Trust Inc: $300M senior notes, Expected Q1 2019

Additional Commentary

NEW ISSUANCE WATCH: on 3/15/19 participants welcome an $1000MM new corporate-bond offering by
SS&C Technologies Inc.  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)
Cable & Wireless Communication (5Y Sen USD CR14)
SuperValu Inc. (5Y Sen USD MR14)

Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • Nine West Holdings Inc., TruGreen LP, PetVet Care Centers LLC, XPO Logistics Inc.

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 03/20/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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