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Investment Grade Bond Research – March 15, 2019

Posted on March 15, 2019

INVESTMENT-GRADE DEBT REGAINED FAVOR as investors scaled back risk upon additional weak economic data released on Friday. Manufacturing output slipped for the second straight month extending fears of a slowing economy following the release of poor data earlier this week.  Output dipped 0.4 percent in February and decreased 0.5 percent in January.  The 10-year U.S. Treasury note declined 0.3 basis point.  The S&P rose +0.50%, the gained Dow +0.54%, while the settled NASDAQ +0.59% higher.

JOB OPENINGS SKYROCKET TO THE THIRD HIGHEST LEVEL ON RECORD; openings reached 7.58 million in January signaling the labor market is in good standing despite an increase in the number of unemployment applications.  Employers are keen on hiring new employees even given the tight labor market; unemployment stands at 6.235 million well below the number of openings.  F-Component Facebookof the FAANG group suffered a significant blow sinking 5 percent after the departure of Chief Product Officer Chris Cox one of the company’s first 15 engineers.  The surprising news comes one day after Facebook endured its longest outage of nearly 24 hours.  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 Foods Inc. (USD) 5% 6/4/2042 made analysts’ ‘Conviction Buy’ lists. (See the chart for Kraft Foods Inc. below) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Dell Intl LLC 5.3% 10/1/2029 144A + 0.7%
  Maple Escrow Subsidiary Inc. 4.057% 5/25/2023 144A + 0.1%
–   Roche Hldg Inc. 2.875% 9/29/2021 144A -0.1%
Verizon Communications Inc.   4.016% 12/3/2029 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 0.14% 0.33% 0.53% 3.36% 2.86% 4.32%
Mining -0.13% 0.13% 0.65% 3.96% 3.60% 3.26%
Construction -0.14% 0.15% 0.74% 3.49% 2.64% 3.75%
Manufacturing -0.08% 0.15% 0.40% 3.02% 2.59% 3.22%
Transportion, Communication, Electric/Gas -0.19% 0.11% 0.67% 3.92% 3.15% 3.82%
Wholesale -0.10% 0.14% 0.85% 3.64% 3.79% 3.31%
Retail -0.11% 0.18% 0.38% 3.20% 2.71% 3.23%
Finance, Insurance, Real-Estate -0.05% 0.14% 0.60% 2.92% 2.17% 4.08%
Services -0.13% 0.15% 0.39% 3.10% 2.45% 3.66%
Public Administration -0.01% -0.01% 0.38% 1.59% 0.77% 3.20%
Energy -0.13% 0.11% 0.76% 4.23% 3.92% 3.84%
Total returns (non-annualized) by rating, market weighted.

New Issues New Issues [Continued]
1. Synchrony Financial (USD) 4.375% 3/19/2024 (03/14/2019):600MM Senior Unsecured Notes, Price at Issuance 99.756, Yielding 4.43%.

2. Independent Bank Group Inc. (USD) 4.75% 3/15/2029 (03/14/2019): 50MM Subordinated Notes, Price at Issuance 100, Yielding 4.75%.

Additional Commentary

NEW ISSUANCE WATCH: on 3/15/19 participants welcome a $2500MM new corporate-bond offering by
JPMorgan Chase & Co. The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 3/8/2019, with a net outflow of $1.69B, year-to-date $7.8B 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 XR14)
Cable & Wireless Communication (5Y Sen USD CR14)
SuperValu Inc. (5Y Sen USD MR14)

Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • XPO Logistics Inc., MYOB LTD, Dell International, Amer Sports Corp.

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 03/15/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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