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High Yield Bond Research – March 21, 2019

Posted on March 21, 2019
INVESTMENT-GRADE BONDS EDGED OUT HIGH-YIELD DEBT as bond investors scaled back risk upon the market digesting the Feds dovish tone following yesterday’s conference.  Data points to an expanding economy for the first time in five months aided by “a rebound in stock prices” and “accommodative financial conditions”. A Moody’s Analyst indicated expectations need to be reasonable for 2019, “The U.S. economy enjoyed a banner year in 2018, juiced up by massive deficit-financed tax cuts for individuals and businesses and increases in government spending,”. The 10-year U.S. Treasury note sank 8 basis point.  S&P +1.09%, Dow +0.87%, NASDAQ +1.42%

U.S. LABOR MARKET REMAINS SOLID after a robust unemployment report despite a weak outlook in manufacturing.  Jobless claims dropped by 9,000 to a seasonally adjusted 221,000 claims, while the unemployment rate is near rock bottom at 3.8 percent. Tech stocks rally boosting equities higher led by A-Component Apple of the FAANG group rising +3.68%.  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, Marathon Oil Corp. (USD) 5.2% 6/1/2045 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI indexes above)  Corey Mahoney cmahoney@advantagedata.com).
Key Gainers and Losers Volume Leaders
+   Toronto Dominion Bk Ont 3.625% 9/15/2031 + 0.7%
  Goodyear Tire & Rubber Co. 5.125% 11/15/2023 + 0.3%
–   Vale Overseas LTD 6.25% 8/10/2026 -0.2%
BED Bath & Beyond Inc.   4.915% 8/1/2034
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.27% 1.09% 2.81% 6.34% 5.95% 5.34%
Mining 0.12% 0.37% 0.24% 6.95% 7.44% 3.35%
Construction 0.02% 0.60% 1.33% 5.75% 5.76% 3.48%
Manufacturing 0.08% 0.34% 1.15% 5.95% 6.01% 5.21%
Transportion, Communication, Electric/Gas 0.05% 0.32% 1.36% 5.64% 5.52% 5.57%
Wholesale 0.08% 0.28% 0.97% 5.05% 5.62% 4.25%
Retail -0.03% 0.33% 1.10% 7.70% 7.90% 4.35%
Finance, Insurance, Real-Estate 0.08% 0.33% 1.25% 5.95% 6.05% 5.62%
Services 0.03% 0.25% 1.02% 6.08% 6.17% 5.78%
Public Administration 0.47% 0.68% 2.14% 5.66% 5.63% 10.18%
Energy 0.15% 0.32% 0.45% 6.70% 7.17% 3.52%
 
Total returns (non-annualized) by rating, market weighted.

New Issues Forward Calendar
1. Viasat Inc. (USD) 5.625% 4/15/2027 144A (03/20/2019): 600MM First Lien Notes, Price at Issuance 100, Yielding 5.63%.

2. Churchill Downs Inc. (USD) 5.5% 4/1/2027 144A (03/20/2019):600MM Senior Unsecured Notes, Price at Issuance 100, Yielding 5.5%.

 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 3/20/19 participants welcome an $600MM new corporate-bond offering by
Viasat 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)
Weatherford International LTD (5Y Sen USD XR14)
Hertz Corp. (5Y Sen USD CR14)		 SuperValu Inc. (5Y Sen USD MR14)
San Miguel Corp. (5Y Sen USD CR14)

Loans and Credit Market Overview

SYNDICATED LOANS HIGHLIGHTS:

Deals recently freed for secondary trading, notable secondary activity:

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

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 15 bp (basis points), as of 03/21/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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