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Investment Grade Bond Research – April 12, 2019

Posted on April 12, 2019

RISK-ON SENTIMENT INTENSIFIED FOLLOWING A SLEW OF POSITIVE EARNINGS as the Dow Jones Industrial Average spiked 230 points.   J.P. Morgan and Disney were among the companies that reported on Friday, J.P. Morgan announced the “impact of higher rates” elevated earnings, JPM closed 4.5 percent higher.  Disney surged 11 percent after revealing a rival streaming service to Netflix.  Economic concerns have dissipated, “Strength in [JPMorgan’s] consumer franchise shows that despite the uncertainty in the fourth quarter of last year, consumers continue to spend and give strength to the overall U.S. economy”10-year Treasury note rose 6.4 basis points. S&P +0.64%, DOW +0.96%, NASDAQ +0.44%.

U.S. TREASURY YIELDS SETTLED HIGHER upon favorable global economic data and an uptick of exports from China.  “Treasuries are on their back foot to close out the week, an unsurprising development given stronger-than-expected data out of both China…and the Eurozone,” Jon Hill, an interest-rate strategist at BMO Capital Markets. The U.S. Justice Department slapped GE with a $1.5 billion fine since they concealed the skimpy quality of loans when packaging them into residential mortgage-backed securities. 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,  Pacific Gas & Electric Co. (USD) 4.3% 3/15/2045 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI indices above.) Corey Mahoney cmahoney@advantagedata.com).
Key Gainers and Losers Volume Leaders
+   Glencore Funding LLC 4.875% 3/12/2029 144A + 0.2%
  Dell Intl LLC 4% 7/15/2024 144A + 0.0%
–   Mars Inc. 3.95% 4/1/2049 144A -0.2%
Anheuser-Busch Co. Inc.   4.9% 2/1/2046 144A
Halfmoon Parent Inc.   4.9% 12/15/2048 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.70% 0.55% 2.06% 4.84% 4.88% 4.46%
Mining -0.05% 0.36% 2.04% 4.52% 5.57% 4.58%
Construction -0.12% 0.20% 1.71% 3.45% 3.94% 4.26%
Manufacturing -0.06% 0.37% 1.68% 3.70% 4.01% 3.92%
Transportion, Communication, Electric/Gas -0.11% 0.39% 2.17% 4.69% 5.12% 4.92%
Wholesale -0.09% 0.39% 1.49% 4.16% 4.77% 3.75%
Retail -0.12% 0.32% 1.72% 3.96% 4.30% 4.15%
Finance, Insurance, Real-Estate -0.06% 0.23% 1.21% 3.37% 3.55% 4.53%
Services -0.09% 0.31% 1.62% 3.72% 4.08% 4.63%
Public Administration -0.04% 0.07% 0.48% 1.07% 1.06% 3.22%
Energy -0.08% 0.36% 2.07% 4.87% 5.79% 5.02%
 
Total returns (non-annualized) by rating, market weighted.

unnamed - 2019-04-12T171637.588

New Issues New Issues [Continued]
1. Floodsmart RE LTD (USD) 0.5% 3/7/2022 (04/11/2019): 250MM Unsecured Notes, Price at Issuance 100, Yielding .5%.

2. Avolon Holdings LTD (USD) 3.95% 7/1/2024 Reg S (04/11/2019):1000MM Senior Unsecured Notes, Price at Issuance 99.458, Yielding 4.07%.

Additional Commentary

NEW ISSUANCE WATCH: on 4/11/19 participants welcome a $750MM new corporate-bond offering by
Avolon Holdings LTD.  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)
Cable & Wireless Communication (5Y Sen USD CR14)
SuperValu Inc. (5Y Sen USD MR14)

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Loans and Credit Market Overview

SYNDICATED LOANS HIGHLIGHTS:

Deals recently freed for secondary trading, notable secondary activity:

  • Six Flags Inc., MW Industries Inc., Ultimate Software Group, Crossamerica Partners LP

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 18 bp (basis points), as of 04/12/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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