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Investment Grade Bond Research – April 11, 2019

Posted on April 11, 2019

TREASURY YIELDS ROSE ON THURSDAY upon the release of positive economic data on the labor market calming fears of a slowing economy, 10-year Treasury note increased 3.4 basis points.  Equities settled lower as investors anticipate a lackluster quarterly earnings season set to kick off this Friday.  Chief equity strategist Terry Sandven at U.S. Bank Wealth Management sees opportunity, “Expectations for first-quarter results have been ratcheted down on the heels of sluggish global growth, so the bar is low and it could set the stage for upside surprises”S&P -0.11%, DOW -0.19%, NASDAQ -0.31%

INITIAL JOBLESS CLAIMS HIT NEARLY a 50 year low last week falling by 8,000 indicating the labor market remains resilient despite soft economic data; claims fell below 200,000 for the first time since 1969.   U.S. producer prices increased 0.6 percent in March surpassing estimates of 0.3 percent further alleviating fears of a recession.  Guggenheim provides assurance the next recession will be mild compared to previous recent recessions, “Our work shows that when recessions hit, the severity of the downturn has a relatively minor impact on the magnitude of the associated bear market in stocks”. 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,  HCA Inc. (USD) 5.875% 3/15/2022 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI indices above.) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Dell Intl LLC 5.3% 10/1/2029 144A + 0.1%
  Diamond 1 Finance Corp. / Diamond 2 Finance Corp. 6.02% 6/15/2026 144A + 0.3%
–   Halfmoon Parent Inc. 4.8% 8/15/2038 144A -0.6%
Dell Intl LLC   4.9% 10/1/2026
Anheuser-Busch Co. Inc.   4.9% 2/1/2046 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.42% -0.45% 1.23% 3.90% 3.98% 4.46%
Mining 0.15% 0.45% 2.01% 4.83% 5.61% 4.73%
Construction 0.11% 0.41% 1.72% 3.69% 4.07% 4.33%
Manufacturing 0.16% 0.49% 1.77% 3.89% 4.14% 4.00%
Transportion, Communication, Electric/Gas 0.17% 0.62% 2.29% 5.09% 5.37% 5.28%
Wholesale 0.16% 0.48% 1.57% 4.26% 4.54% 3.85%
Retail 0.18% 0.50% 1.83% 4.19% 4.44% 4.34%
Finance, Insurance, Real-Estate 0.12% 0.34% 1.22% 3.59% 3.64% 4.60%
Services 0.18% 0.45% 1.74% 3.94% 4.18% 4.80%
Public Administration 0.06% 0.18% 0.51% 1.25% 1.13% 3.30%
Energy 0.14% 0.49% 2.08% 5.18% 5.92% 5.19%
Total returns (non-annualized) by rating, market weighted.

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New Issues New Issues [Continued]
1. Public Storage (USD) 3.385% 5/1/2029 (04/10/2019): 500MM Senior Unsecured Notes, Price at Issuance 99.998, Yielding 3.39%.

2. Floodsmart RE LTD (USD) 0.5% 3/7/2022 (04/11/2019): 50MM Unsecured Notes, Price at Issuance 100, Yielding .5%.

Additional Commentary

NEW ISSUANCE WATCH: on 4/10/19 participants welcome a $500MM new corporate-bond offering by
Public Storage.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 4/5/19, with a net inflow of $2.0B, year-to-date $12.0B 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)
Road King Infrastructure LTD (5Y Sen USD MR14)
Atmos Energy Corp. (5Y Sen USD MR14)

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Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • Six Flags Inc., MW Industries Inc., Ultimate Software Group, Crossamerica Partners 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 19 bp (basis points), as of 04/11/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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