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High Yield Bond Research – March 28, 2019

Posted on March 28, 2019
INVESTMENT-GRADE DEBT NARROWLY EDGED OUT JUNK BONDS in net prices linked to actual trades.  Equities failed to find a direction upon the release of revised GDP growth cutting the fourth-quarter growth to 2.2 percent from 2.6 percent, well below the 3 percent annual target.  Economists blame softer consumer spending and a decline in business investment from China, a result of the ongoing trade dispute.  The 10-year Treasury note advanced 1.4 basis points. S&P +0.39%, DOW +0.37%, NASDAQ+0.37%
JOBLESS CLAIMS FELL LAST WEEK for the second consecutive week to match the lowest levels year-to-date, layoff rates remain near half-century lows.  Chief economist at Barclays stated, “Altogether, we see the initial claims data as consistent with healthy labor market conditions and further evidence that February’s abrupt slowdown in payroll gains is likely to prove transitory.”  Lyft will IPO tomorrow within the price range of $70 and $72 per share raising approximately $2.1 billion, in 2018 the company posted a loss of $911 millionADI 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,  Anheuser-Busch Inbev Worldwide Inc. (USD) 4.375% 4/15/2038 made analysts’ ‘Conviction Buy’ lists. (See the chart for  ADI Indices above)   Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Petrobras Global Finance BV 7.375% 1/17/2027 + 0.6%
  AerCap Ireland Capital LTD 4.625% 10/30/2020 + 0.0%
–   Limited Brands Inc. 5.625% 2/15/2022 -0.3%
Pacific Gas & Electric Co.   6.05% 3/1/2034
Wachovia Capital Trust III   FLT% 3/15/2042
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.23% 0.38% 2.89% 7.36% 6.83% 6.86%
Mining 0.07% 0.53% 0.34% 8.34% 7.55% 2.83%
Construction 0.11% 0.44% 1.10% 6.74% 6.38% 4.58%
Manufacturing 0.02% 0.31% 0.93% 6.90% 6.30% 5.49%
Transportion, Communication, Electric/Gas 0.12% 0.25% 0.96% 6.82% 6.09% 6.19%
Wholesale 0.10% 0.30% 0.67% 6.71% 6.31% 3.84%
Retail 0.09% 0.52% 1.26% 7.87% 7.34% 5.36%
Finance, Insurance, Real-Estate 0.01% 0.25% 1.11% 6.76% 6.33% 5.87%
Services 0.06% 0.26% 0.82% 7.51% 6.82% 6.39%
Public Administration -0.19% -0.49% 1.58% 7.59% 5.57% 10.78%
Energy 0.04% 0.53% 0.58% 8.11% 7.39% 3.07%
Total returns (non-annualized) by rating, market weighted.

New Issues Forward Calendar
1. MGM Resorts International (USD) 5.5% 4/15/2027 (03/27/2019):1000MM Senior Unsecured Notes, Price at Issuance 100, Yielding 5.5%.

2. Smithfield Foods Inc. (USD) 5.2% 4/1/2029 Reg S (03/27/2019):400MM Senior Unsecured Notes, Price at Issuance 99.492, Yielding 5.27%.

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 3/27/19 participants welcome a $550MM new corporate-bond offering by
Realogy Group LLC.  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 CR14)
Hovnanian Enterprises Inc. (5Y Sen USD XR14)
SuperValu Inc. (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:

  • Kirby Corp., Syneos Health, Inc., Fred Olsen Wind LTD, Carbonite 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 18 bp (basis points), as of 03/28/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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