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Investment Grade Bond Research – March 25, 2019

Posted on March 25, 2019

TREASURY YIELDS STABILIZED following Friday’s bond market rally and inversion of the 3-month bill and 10-year note. The Federal Housing Authority is tightening lending standards “flagging more loans as high risk” concerned lenders are making loans that will default.  The average credit score of a homebuyer seeking a mortgage significantly decreased over the past seven years to 620 compared to 701 in 2011.  The 10-year U.S. Treasury note fell 4.3 basis point.  S&P -0.07%, Dow +0.1%, NASDAQ -0.08%

EQUITIES WAVERED ON MONDAY as investors rolled over economic anxieties from last week.  Scott Minerd, CIO of Guggenheim remains bullish on the economy despite the Fed not raising rates for the remainder of 2019, “The rate declines are starting to feed back into the real economy and ultimately, the economy is going to reaccelerate and that’s going to continue to drive job growth”.  He sees more “upside” for stock and as for bonds, “I think we’re in the endgame for the rally in bonds for the near term”.  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,  Lowe’s Companies Inc. (USD) 6.65% 9/15/2037 made analysts’ ‘Conviction Buy’ lists. (See the chart for Lowe’s Companies Inc. below) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   KKR Group Finance Co. III 5.125% 6/1/2044 144A + 1.5%
  Commonwealth Bank of Australia 4.5% 12/9/2025 + 1.3%
–   Dell Intl LLC 4% 7/15/2024 144A -0.2%
Siemens Financieringsmaatschappij NV   3.3% 9/15/2046 144A
Dell Intl LLC   4% 7/15/2024 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.59% 0.85% 1.48% 4.18% 3.98% 4.64%
Mining 0.42% 0.94% 1.50% 5.12% 4.77% 4.83%
Construction 0.48% 0.89% 1.79% 4.05% 3.56% 4.81%
Manufacturing 0.47% 0.88% 1.48% 3.90% 3.65% 4.12%
Transportion, Communication, Electric/Gas 0.62% 1.23% 1.91% 4.90% 4.60% 5.32%
Wholesale 0.44% 0.93% 1.86% 4.79% 4.81% 4.72%
Retail 0.49% 0.91% 1.54% 4.07% 3.84% 4.51%
Finance, Insurance, Real-Estate 0.28% 0.61% 1.13% 3.30% 2.89% 4.80%
Services 0.52% 1.01% 1.57% 3.98% 3.71% 5.04%
Public Administration 0.20% 0.35% 0.65% 1.62% 1.15% 3.61%
Energy 0.47% 1.00% 1.71% 5.39% 5.15% 5.35%
Total returns (non-annualized) by rating, market weighted.

New Issues New Issues [Continued]
1. Sanders RE LTD (USD) FLT% 4/7/2023 (03/25/2019): 300MM Senior Unsecured Notes, Price at Issuance 100.

Additional Commentary

NEW ISSUANCE WATCH: on 3/25/19 participants welcome a $300MM new corporate-bond offering by
Interstate Power & Light Co.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 3/22/19, with a net inflow of $1.8B, year-to-date $10B 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)
SuperValu Inc. (5Y Sen USD MR14)

Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • Fred Olsen Wind LTD, Carbonite Inc, HotelBeds, Nine West Holdings Inc., TruGreen LP

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 03/25/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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