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Investment Grade Bond Research – April 24, 2019

Posted on April 24, 2019

INVESTMENT-GRADE DEBT EDGED OUT JUNK BONDS in net prices linked to actual trades as investors purchase safe-haven assets. Treasury yields dip on soft global economic data stirring up anxiety among investors. The spread between the two and 10-year widened to 21.5 basis points. The 10-year note sank 5.0 basis points. S&P -0.03%, DOW -0.10%, NASDAQ-0.02%.

U.S. MORTGAGE APPLICATIONS DECLINE to post their largest drop in four months as mortgage rates increased to one-month highs.  “The strong economy and job market (are) keeping buyer interest high, but rising mortgage rates could add pressure to the budgets of some would-be buyers,” MBA’s chief economist Mike Fratantoni said in a statement.  June delivery of crude declined 0.77 percent following a report U.S. crude supplies rose by 6.9 million barrels last week; In addition, gasoline inventories rose by 2.2 million barrels.  Domestic crude inventories hit an 18-month high settling lower at $74.37 per barrel. “Overall the report was considered bearish,” said Kyle Cooper, a consultant at ION Energy. ADI proprietary index data showed a net yield increment for high-yield versus high-grade bonds.  High-grade edged out high-yield. Among high-grade bonds showing topmost price gains at appreciable volumes traded,   Kraft Heinz Co (USD) 5.2% 7/15/2045 made analysts’ ‘Conviction Buy’ lists. (See the chart for  Kraft Heinz Co bonds below) Corey Mahoney cmahoney@advantagedata.com).
Key Gainers and Losers Volume Leaders
+   Apple Inc. 2.4% 5/3/2023 + 0.0%
  Deutsche Bank AG 3.375% 5/12/2021 (1) + 0.6%
–   Occidental Petroleum Corp. 4.2% 3/15/2048 -0.1%
Apple Inc.   2.4% 5/3/2023
GE Capital Intl. Funding Co.   3.373% 11/15/2025
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.28% -0.20% 0.15% 3.71% 4.23% 4.63%
Mining -0.02% 0.00% 0.70% 4.18% 5.93% 5.66%
Construction 0.04% 0.21% 0.49% 3.56% 4.21% 5.01%
Manufacturing 0.05% 0.02% 0.33% 3.32% 4.07% 4.74%
Transportion, Communication, Electric/Gas 0.04% 0.15% 0.66% 4.52% 5.45% 6.31%
Wholesale 0.05% 0.07% 0.42% 3.72% 4.90% 4.90%
Retail 0.05% -0.01% 0.21% 3.48% 4.18% 5.21%
Finance, Insurance, Real-Estate 0.09% 0.13% 0.35% 3.07% 3.77% 5.40%
Services 0.08% -0.08% 0.13% 2.94% 3.82% 5.59%
Public Administration 0.04% 0.12% 0.04% 1.14% 1.08% 3.76%
Energy -0.01% -0.03% 0.61% 4.32% 5.96% 6.15%
 
Total returns (non-annualized) by rating, market weighted.

unnamed - 2019-04-24T170133.552

New Issues New Issues [Continued]
1. Kimberly-Clark Corp. (USD) 3.2% 4/25/2029 (04/23/2019): 700MM Senior Unsecured Notes, Price at Issuance 99.83, Yielding 3.22%.

2. Rogers Communications Inc. (CAD) 3.25% 5/1/2029 (04/23/2019):1000MM Senior Unsecured Notes, Price at Issuance 99.746, Yielding 3.28%.

3. JBS USA LLC (USD) 5.875% 7/15/2024 (04/24/2019): 150MM Senior Unsecured Notes, Price at Issuance 101.75, Yielding 5.48%.

Additional Commentary

NEW ISSUANCE WATCH: on 4/23/19 participants welcome a $700MM new corporate-bond offering by
Kimberly-Clark 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)
Rite Aid Corp. (5Y Sen USD XR14)
Hertz Corp. (5Y Sen USD CR14)
Cable & Wireless Communication (5Y Sen USD CR14)
Atmos Energy Corp. (5Y Sen USD MR14)

unnamed (95)

Loans and Credit Market Overview

SYNDICATED LOANS HIGHLIGHTS:

Deals recently freed for secondary trading, notable secondary activity:

  • Prysmian, Project Maple II BV, Trade Me Group LTD, Jane Street, Six Flags Inc.

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 15 bp (basis points), as of 04/24/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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