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Investment Grade Bond Research – March 19, 2019

Posted on March 19, 2019

JUNK BONDS PREVAILED AGAINST INVESTMENT-GRADE DEBT in net price gains linked to actual trades as a slight risk-on sentiment returns to the bond market.  Investors are progressively becoming bullish on Treasuries as fewer investors are inclined to short Government bonds amid a surprise jump of weak economic data.  Equities snapped a six-day win streak the, S&P slipped -0.01%, the Dow settled -0.09% lower, and the NASDAQ rose +0.12%.  Gold ticked higher closing above $1,300 an ounce. The 10-year U.S. Treasury note rose 0.8 basis point.

MANUFACTURING ORDERS INCREASED LESS THAN EXPECTED in January as shipments declinedfor the fourth consecutive month; shipments dipped 0.4 percent while orders edged 0.1 percent higher.  Crude oil touches multi-month highs on Tuesday, year to date up 25 percent before settling down -0.36% closing at $58.88 per barrel.  According to Andy Lipow, President of Lipow Oil Associates in Houston, “OPEC and non-OPEC producers are determined to get the supply and demand dynamics into better balance, recognizing U.S. shale production is going to continue to rise”.  Members agreed to slash outputs by 800,000 barrels a day from October’s production levels.  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. made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI indexes above) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Lukoil Intl. Finance BV 4.75% 11/2/2026 144A + 0.2%
  Diamond 1 Finance Corp. / Diamond 2 Finance Corp. 4.42% 6/15/2021 144A + 0.0%
–   H.J. Heinz Finance Co. 7.125% 8/1/2039 144A -1.1%
Verizon Communications Inc.   FLT% 3/16/2022
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.05% 0.47% 0.88% 3.20% 3.12% 4.44%
Mining -0.01% 0.44% 0.75% 3.77% 3.80% 3.78%
Construction -0.03% 0.41% 0.99% 3.20% 2.89% 3.95%
Manufacturing -0.03% 0.40% 0.51% 2.83% 2.85% 3.38%
Transportion, Communication, Electric/Gas 0.02% 0.47% 0.83% 3.64% 3.47% 4.20%
Wholesale 0.00% 0.31% 0.85% 3.52% 4.02% 3.45%
Retail -0.04% 0.41% 0.53% 2.97% 2.96% 3.49%
Finance, Insurance, Real-Estate -0.02% 0.26% 0.67% 2.78% 2.38% 4.22%
Services -0.03% 0.36% 0.52% 2.81% 2.68% 3.84%
Public Administration 0.01% 0.10% 0.40% 1.44% 0.86% 3.35%
Energy -0.02% 0.46% 0.84% 3.97% 4.10% 4.26%
Total returns (non-annualized) by rating, market weighted.

New Issues New Issues [Continued]
1. Target Corp. (USD) 3.375% 4/15/2029 (03/18/2019): 1000MM Senior Unsecured Notes, Price at Issuance 99.99, Yielding 3.38%.

2. Louisville Gas & Electric Co. (USD) 4.25% 4/1/2049 (03/18/2019):400MM First Lien Notes, Price at Issuance 99.882, Yielding 4.26%.

Additional Commentary

NEW ISSUANCE WATCH: on 3/18/19 participants welcome a $1000MM new corporate-bond offering by
Target Corp. The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 3/15/19, with a net inflow of $1.0B, year-to-date $8.2B 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)
Cable & Wireless Communication (5Y Sen USD CR14)
San Miguel Corp. (5Y Sen USD CR14)

Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • TruGreen LP, PetVet Care Centers LLC, XPO Logistics Inc., MYOB LTD, Dell International

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 20 bp (basis points), as of 03/19/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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