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High Yield bond research – March 22, 2019

Posted on March 22, 2019
RISK-OFF SENTIMENT PREVAILED AS INVESTMENT-GRADE DEBT significantly outpaced junk bonds in net prices linked to actual trades.  Equities receded after the release of weak economic data, despite the 11.8 percent increase jump in existing home sales in February.  A cooling trend has emerged, “Homes aren’t flying off the market as they have been” Cheryl Young senior economist at Trulia. The 10-year U.S. Treasury note plummeted 9.6 basis point.  S&P -1.90%, Dow -1.77%, NASDAQ -2.50%
YIELD CURVE INVERSION SENDS SHOCKWAVES through the market spooking investors and sparking recession anxieties.  The 3-month bill and the 10-year note inverted for the first time since 2007 after the release of disappointing U.S. manufacturing data.  The Purchasing Managers Index declined 0.5 percent to 52.5, missing expectations of 53.6 further solidifying the Feds decision to keep rates at the current levels until the end of 2019.   Lending for equipment sank 24 percent in February compared to the prior year and 18 percent from January 2019.  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, Citigroup Inc. (USD) 6.875% 3/5/2038 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI indexes above)  Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Zayo Group LLC 5.75% 1/15/2027 + 0.3%
  Valeant Pharmaceuticals Intl. Inc. 8.5% 1/31/2027 144A + 0.1%
–   Panther BF Aggregator 2 LP Panther Finance Co. Inc. 6.25% 5/15/2026 -0.5%
Scientific Games Intl. Inc.   8.25% 3/15/2026 144A
Par Pharmaceutical Cos Inc.   7.5% 4/1/2027 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.22% 0.97% 2.86% 7.21% 6.81% 6.54%
Mining 0.21% 0.56% 0.31% 7.82% 7.59% 2.83%
Construction 0.09% 0.63% 1.04% 5.51% 5.30% 3.23%
Manufacturing 0.16% 0.47% 1.26% 6.52% 6.19% 5.51%
Transportion, Communication, Electric/Gas 0.08% 0.40% 1.59% 6.06% 5.67% 5.57%
Wholesale 0.06% 0.24% 0.95% 5.57% 5.66% 4.06%
Retail 0.09% 0.30% 1.45% 8.14% 8.03% 4.88%
Finance, Insurance, Real-Estate 0.08% 0.38% 1.37% 6.39% 6.17% 5.87%
Services 0.12% 0.28% 0.99% 6.71% 6.49% 5.60%
Public Administration -0.25% 0.14% 1.96% 5.38% 5.36% 10.17%
Energy 0.17% 0.54% 0.50% 7.37% 7.21% 3.01%
Total returns (non-annualized) by rating, market weighted.

New Issues Forward Calendar
1. Kosmos Energy (USD) 7.125% 4/4/2026 144A (03/21/2019):650MM Senior Unsecured Notes, Price at Issuance 100, Yielding 7.13%. 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 3/21/19 participants welcome an $650MM new corporate-bond offering by
Kosmos Energy.  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:

  • Carbonite Inc, HotelBeds, Nine West Holdings Inc., TruGreen LP

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 14 bp (basis points), as of 03/22/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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