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Investment Grade Bond Research – April 22, 2019

Posted on April 22, 2019

HIGH-YIELD DEBT ROSE AGAINST INVESTMENT GRADE BONDS in net prices linked to actual trades. Treasury yields ticked higher resulting in a steeper curve as crude oil prices push higher, the two often move hand in hand. In addition, the spread between the two and 10-year note widened 1.3 basis points.  10-year Treasury note rose 0.2 basis points.  S&P -0.01%, DOW -0.22%, NASDAQ +0.07%

EXISTING U.S. HOME SALES PLUMMET 4.9 PERCENT IN MARCH to start the spring selling season off on a low note.  The underlining issue remains with the lack of affordable inventory causing the slowdown.  Doug Duncan, chief economist at Fannie Mae states “There simply isn’t supply at the entry level where people actually want to buy”.  Crude oil soared 2.59 percent as the U.S. announced the termination of waivers for countries to import Iranian oil.  U.S. Secretary Mike Pompeo declared “U.S. will not issue any exception to Iranian oil importers,” currently eight countries have waivers expiring May 2.  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, Lennar Corp. (USD) 4.75% 4/1/2021 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI indices above.) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Quest Diagnostics Inc. 4.75% 1/30/2020 + 0.0%
  Boston Properties Inc. 3.85% 2/1/2023 + 0.2%
–   Toyota Motor Credit Corp. 1.95% 4/17/2020 -0.1%
CVS Health Corp.   4.3% 3/25/2028
Toronto-Dominion Bank   2.125% 4/7/2021
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.17% -0.30% 1.28% 4.20% 4.56% 4.57%
Mining 0.14% 0.17% 1.82% 4.79% 6.06% 4.85%
Construction 0.14% 0.06% 1.31% 3.74% 4.00% 4.50%
Manufacturing 0.11% -0.08% 1.31% 3.77% 4.14% 4.10%
Transportion, Communication, Electric/Gas 0.20% 0.11% 1.83% 4.98% 5.32% 5.45%
Wholesale 0.12% 0.05% 1.30% 4.13% 4.89% 4.10%
Retail 0.09% -0.07% 1.25% 4.07% 4.32% 4.41%
Finance, Insurance, Real-Estate 0.09% -0.05% 0.88% 3.26% 3.59% 4.80%
Services 0.08% -0.12% 1.09% 3.39% 3.85% 4.88%
Public Administration 0.04% -0.04% 0.32% 1.22% 1.04% 3.47%
Energy 0.17% 0.10% 1.78% 5.05% 6.11% 5.33%
Total returns (non-annualized) by rating, market weighted.

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New Issues New Issues [Continued]


(None Current 04/22/2019)


Additional Commentary

NEW ISSUANCE WATCH: on 4/17/19 participants welcome a $1500MM new corporate-bond offering by
Bank of America Corp.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 4/18/19, with a net inflow of $1.1B, year-to-date $14.4B 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)
SuperValu Inc. (5Y Sen USD XR14)
San Miguel Corp. (5Y Sen USD CR14)

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Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • Prysmian, Project Maple II BV, Trade Me Group LTD, Jane Street, Six Flags 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 17 bp (basis points), as of 04/22/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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