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Investment Grade Bond Research – April 1, 2019

Posted on April 1, 2019

RISK-ON SENTIMENT PREVAILED as high-yield debt outpaced investment-grade bonds in net prices linked to actual trades.  Treasury yields were pushed higher after the release of sound global economic data, in particular, China’s manufacturing index rose above 50 in March.  Crude oil soars to nearly a five-month high, settled up 2.51% or 61.65 per barrel.  The 10-year Treasury note advanced 1.0 basis point. S&P +1.08%, DOW +1.18%, NASDAQ +1.21%

GLOBAL EQUITIES RALLIED upon the release of optimistic manufacturing data as investors overlook soft retail sales in March.  Manufacturing data abroad and in the U.S. surpassed expectations dissipating concerns of a slowing global economy.  Market Strategist Michael O’Rourke stated, “The Chinese numbers bounced back, and people are taking more risk today because of it”.  Construction spending ramped up in January increasing 2.5 percent following the revision of preliminary data, in February spending also rose by 1 percent.  Retail sales took a noteworthy hit in February revealing some uncertainty among consumers as spending declined 0.2 percent well below estimates of a 0.2 percent increase. 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,  CenturyTel Inc. (USD) 7.6% 9/15/2039 made analysts’ ‘Conviction Buy’ lists. (See the chart for  ADI Indices above) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Verizon Communications Inc. 5.012% 4/15/2049 + 11.2%
  Goldman Sachs Group Inc. 5.375% 3/15/2020 + 0.1%
–   CVS Health Corp. 3.875% 7/20/2025 -0.5% Inc.   2.4% 2/22/2023
Apple Inc.   1.55% 8/4/2021
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.01% 0.36% 2.23% 4.49% 4.43% 4.50%
Mining -0.02% 0.56% 2.38% 5.96% 5.56% 4.84%
Construction -0.11% 0.51% 2.56% 4.77% 4.44% 4.38%
Manufacturing -0.06% 0.40% 2.11% 4.31% 4.03% 4.00%
Transportion, Communication, Electric/Gas -0.06% 0.59% 2.90% 5.62% 5.24% 5.23%
Wholesale -0.07% 0.35% 1.82% 4.92% 4.67% 4.04%
Retail -0.10% 0.43% 2.31% 4.68% 4.37% 4.48%
Finance, Insurance, Real-Estate -0.07% 0.32% 1.63% 3.89% 3.64% 4.63%
Services -0.06% 0.39% 2.23% 4.45% 4.13% 4.91%
Public Administration -0.04% 0.15% 0.85% 1.27% 1.11% 3.20%
Energy -0.02% 0.59% 2.49% 6.16% 5.79% 5.32%
Total returns (non-annualized) by rating, market weighted.

New Issues New Issues [Continued]
1. Telus Corp. (CAD) 3.3% 5/2/2029 (04/01/2019): 1000MM Senior Unsecured Notes, Price at Issuance 99.175, Yielding 3.4%.

Additional Commentary

NEW ISSUANCE WATCH: on 3/29/19 participants welcome a $50MM new corporate-bond offering by
Citigroup 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 $0.589B, year-to-date $10.6B flowed into high-yield.
Top Widening Credit Default Swaps (CDS) Top Narrowing Credit Default Swaps (CDS)
Rite Aid Corp. (5Y Sen USD XR14)
Hertz Corp. (5Y Sen USD CR14)
San Miguel Corp. (5Y Sen USD CR14)
Atmos Energy Corp. (5Y Sen USD MR14)

Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • FLIR Systems Inc., 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 22 bp (basis points), as of 04/01/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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