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High Yield Bond Research – March 27, 2019

Posted on March 27, 2019
THE TEN-YEAR TREASURY YIELD FALLS BELOW 2.4 PERCENT sending equities into free-fall before rising trimming losses prior to market close. Investors fear of a looming recession given the yield inversion however, “Based on history, we get another year and a half or so before recession”.  In addition, markets pounder whether the Fed will cut interest rates this year in wake of wake economic data. The 10-year U.S. Treasury note sank 3.9 basis points. S&P -0.46%, Dow -0.13%, NASDAQ -0.63%
LYFT TO IPO ABOVE THE TARGETED RANGE on Friday at a value exceeding $23 billion in market cap.  Shares are likely to price in the $70s, 20 percent above estimates upon excess demand during the roadshow filling up its book quickly.  U.S. Bankruptcy Court in San Francisco approved a $5.5 billion bankruptcy loan for PG&E following the destructive Camp Fire in November 2018.  The company filed for Chapter 11 bankruptcy in January in anticipation of their equipment to be the cause.  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,  Northern States Power Co. of Wisconsin (USD) 4.2% 9/1/2048 made analysts’ ‘Conviction Buy’ lists. (See the chart for  Pacific Gas & Electric Co. below)   Corey Mahoney cmahoney@advantagedata.com).
Key Gainers and Losers Volume Leaders
+   ZF North America Capital Inc. 4.5% 4/29/2022 144A + 0.1%
  CCO Hldg LLC Cco Hldg Capital Corp. 5% 2/1/2028 144A + 0.4%
–   PetSmart Inc. 5.875% 6/1/2025 144A -0.1%
Constellium NV   6.625% 3/1/2025 144A
Wellcare Health Plans   5.375% 8/15/2026 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.02% 0.50% 2.47% 7.00% 6.34% 5.81%
Mining 0.23% 0.53% 0.28% 7.96% 7.37% 2.60%
Construction 0.17% 0.27% 1.09% 6.26% 5.94% 3.94%
Manufacturing 0.14% 0.37% 0.95% 6.85% 6.25% 5.79%
Transportion, Communication, Electric/Gas 0.13% 0.24% 1.07% 6.55% 5.85% 6.27%
Wholesale 0.04% 0.20% 0.73% 6.22% 5.85% 4.22%
Retail 0.11% 0.06% 0.90% 8.41% 7.85% 4.21%
Finance, Insurance, Real-Estate 0.09% 0.31% 1.11% 6.69% 6.29% 6.08%
Services 0.08% 0.04% 0.50% 7.06% 6.46% 6.09%
Public Administration 0.29% 0.23% 1.31% 7.27% 5.37% 11.21%
Energy 0.25% 0.63% 0.53% 7.55% 7.08% 2.94%
 
Total returns (non-annualized) by rating, market weighted.

New Issues Forward Calendar
1. Allison Transmission Inc. (USD) 5.875% 6/1/2029 144A (03/26/2019): 500MM Senior Unsecured Notes, Price at Issuance 100, Yielding 5.88%. 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 3/26/19 participants welcome a $500MM new corporate-bond offering by
Allison Transmission Inc.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 3/22/19, with a net inflow of $1.8B, year-to-date $10B 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)
SuperValu Inc. (5Y Sen USD MR14)
Atmos Energy Corp. (5Y Sen USD MR14)

Loans and Credit Market Overview

SYNDICATED LOANS HIGHLIGHTS:

Deals recently freed for secondary trading, notable secondary activity:

  • Syneos Health, Inc., Fred Olsen Wind LTD, Carbonite Inc, HotelBeds, Nine West Holdings 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 03/27/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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