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Investment Grade Bond Research – April 16, 2019

Posted on April 16, 2019

HIGH-YIELD BONDS OUTPACED INVESTMENT-GRADE in net prices linked to actual trades.  Treasury prices dipped sending yields higher, the 10-year Treasury note rose 3.8 basis points and the 30-year notegained 2.4 basis points.  Gold slid to its lowest point in 2019 as a risk-on appetite picks up sending equity indexes near record highs.  S&P +0.14%, DOW +0.31%, NASDAQ +0.45%.

INDUSTRIAL PRODUCTION DECLINED 0.1 PERCENT in March, analysts expected a rise in production of 0.1 percent.  Auto production sank 2.5 percent in March and in the first quarter auto production fell at an annual rate of 12.8 percent.  “Manufacturing production has pivoted to the downside in the first quarter of the year, showing the revival in factories and output is sputtering for the first time since the Trump economics team took office” stated Chris Rupkey, chief economist at MUFG.  The sluggish data is expected to keep the Federal Reserve in a “patient” stance in regards to raising rates. 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, Frontier Communications Corp. (USD) 6.25% 9/15/2021 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI indices above.) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Walt Disney Co. 4.95% 10/15/2045 144A + 0.1%
  FirstEnergy Transmission LLC 4.55% 4/1/2049 144A + 0.3%
–   Mars Inc. 3.95% 4/1/2049 144A -0.4%
21st Century Fox America   5.576% 1/25/2049 144A
Dell Intl LLC   5.3% 10/1/2029 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.37% 0.28% 1.48% 4.42% 4.76% 4.48%
Mining 0.04% 0.42% 1.86% 4.92% 5.85% 4.80%
Construction 0.12% 0.17% 1.39% 3.69% 4.16% 4.45%
Manufacturing 0.04% 0.25% 1.32% 3.81% 4.03% 4.00%
Transportion, Communication, Electric/Gas 0.07% 0.32% 1.83% 4.91% 5.15% 5.13%
Wholesale 0.08% 0.29% 1.33% 4.25% 4.86% 3.88%
Retail 0.04% 0.20% 1.32% 4.09% 4.32% 4.35%
Finance, Insurance, Real-Estate 0.04% 0.14% 0.90% 3.32% 3.54% 4.61%
Services 0.05% 0.18% 1.22% 3.66% 3.91% 4.77%
Public Administration 0.03% 0.01% 0.31% 1.00% 0.99% 3.23%
Energy 0.08% 0.41% 1.88% 5.25% 6.03% 5.28%
Total returns (non-annualized) by rating, market weighted.

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New Issues New Issues [Continued]
1. BMW US Capital LLC (USD) FLT% 4/14/2022 Reg S (04/15/2019):300MM Senior Unsecured Notes, Price at Issuance 100.

2. BMW US Capital LLC (USD) 3.15% 4/18/2024 144A (04/15/2019):1000MM Senior Unsecured Notes, Price at Issuance 99.94, Yielding 3.16%.

Additional Commentary

NEW ISSUANCE WATCH: on 4/15/19 participants welcome a $1500MM new corporate-bond offering by
PNC Financial Services Group Inc.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 4/12/19, with a net inflow of $0.655B, year-to-date $13.3B flowed into high-yield.
Top Widening Credit Default Swaps (CDS) Top Narrowing Credit Default Swaps (CDS)
Weatherford International LTD (5Y Sen USD XR14)
Hertz Corp. (5Y Sen USD CR14)
SuperValu Inc. (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:

  • Trade Me Group LTD, Jane Street, Six Flags Inc., MW Industries 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 19 bp (basis points), as of 04/16/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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