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High Yield Bond Research – March 29, 2019

Posted on March 29, 2019
JUNK BONDS REGAINED FAVOR AGAINST HIGH-GRADE debt in net prices linked to actual trades. Treasury yields rose on Friday and finished the month down as investors digested the Feds dovish tone. “The market is still trying to process the change of hearts by the Federal Reserve”, Thanos Bardas. The 10-year Treasury note advanced 1.7 basis points. S&P +0.67%, DOW +0.82%, NASDAQ +0.78%
LYFT SHARES SOAR ON ITS DEBUT opening up 21 percent from its IPO price settling up 8.74 percent, $78.29 per share; the IPO raised $2.3 billion. The company rewarded its most loyal drivers with IPO shares, some drivers received upwards of $1000 towards shares. U.S. Consumer spending ticked slightly higher in January signaling households are wary of the economy. Meanwhile, inflation declined in January to its slowest rate since 2016. Economists speculate the slowdown is linked to the Government shutdown“American consumers remained cautious in January amidst the government shutdown…However, we still expect to see a rebound in February”. ADI proprietary index data showed a net yield increment for high-yield versus high-grade bonds. High-yield edged out high-grade. Among high-yield bonds showing topmost price gains at appreciable volumes traded,  Wynn Las Vegas (XUA) 5.25% 5/15/2027 Reg S made analysts’ ‘Conviction Buy’ lists. (See the chart for  Wynn Las Vegas below)   Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Wynn Las Vegas 5.5% 3/1/2025 144A + 0.1%
  PetSmart Inc. 5.875% 6/1/2025 144A + 0.4%
–   NXP BV 4.625% 6/15/2022 144A -0.2%
Argos Merger Sub Inc.   7.125% 3/15/2023 144A
Windstream Services LLC   9% 6/30/2025 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.55% -0.04% 1.93% 6.84% 6.47% 6.34%
Mining -0.09% 0.29% 0.21% 7.63% 7.24% 2.97%
Construction 0.16% 0.38% 1.57% 6.35% 6.22% 3.98%
Manufacturing -0.04% 0.10% 0.93% 6.62% 6.36% 5.52%
Transportion, Communication, Electric/Gas -0.00% 0.24% 1.01% 6.47% 6.08% 6.79%
Wholesale 0.05% 0.23% 0.76% 6.41% 6.26% 4.31%
Retail -0.03% 0.42% 1.13% 7.68% 7.31% 6.07%
Finance, Insurance, Real-Estate 0.01% 0.20% 1.09% 6.50% 6.36% 5.92%
Services 0.00% 0.14% 0.84% 6.97% 6.72% 6.52%
Public Administration 0.02% -0.18% 0.85% 5.32% 5.58% 11.12%
Energy -0.10% 0.40% 0.51% 7.84% 7.43% 3.20%
Total returns (non-annualized) by rating, market weighted.

New Issues Forward Calendar
1. Surgery Center Holdings Inc. (USD) 10% 4/15/2027 Reg S (03/28/2019): 430MM Senior Unsecured Notes, Price at Issuance 100, Yielding 10%.

2. Surgery Center Holdings Inc. (USD) 10% 4/15/2027 144A (03/29/2019): 430MM Senior Unsecured Notes, Price at Issuance 100, Yielding 10%.

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 3/29/19 participants welcome a $430MM new corporate-bond offering by
Surgery Center Holdings 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)
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:

  • 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 03/29/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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