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Investment Grade Bond Research – March 26, 2019

Posted on March 26, 2019

INVESTMENT GRADE-DEBT EDGED OUT JUNK BONDS in net prices linked to actual trades. Housing starts plunged nearly 9 percent in February; the northeast took the most significant hit as permits sank 30 percent. The hottest housing markets, Seattle and San Francisco continue to show signs of cooling off even as interest rates decline. The 10-year U.S. Treasury note rose 1.5 basis point.  S&P +0.37%, Dow +0.27%, NASDAQ +0.32%

CONSUMER CONFIDENCE TOOK A NOTABLE DIP in March, the latest economic indicator drifting lower. The 12 point decline was the largest one-month contraction since the recession in 2008.  The confidence Board said, “the overall trend in confidence has been softening since last summer, pointing to a moderation in economic growth.” A-component Apple of the FAANG group settled 1 percent lower after a U.S. Judge ruled the company violated a Qualcomm patent and recommended some products be banned from import. Delivery of May WTI Crude advanced 2.07 percent upon indicators of a tightening supply and demand concerns in China.  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,  Southern California Edison Company (USD) 5.55% 1/15/2037 made analysts’ ‘Conviction Buy’ lists. (See the chart for Southern California Edison Company below) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Reliance Hldgs USA 4.5% 10/19/2020 144A + 0.6%
  Nestle Hldg Inc. 3.5% 9/24/2025 144A + 0.2%
–   Nestle Hldg Inc. 3.625% 9/24/2028 144A -2.4%
FirstEnergy Transmission LLC   4.55% 4/1/2049 144A
Maple Escrow Subsidiary Inc.   3.551% 5/25/2021 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.19% 0.67% 1.53% 3.88% 3.80% 4.63%
Mining 0.21% 1.14% 1.73% 5.21% 5.11% 5.03%
Construction 0.17% 1.14% 1.99% 4.32% 4.10% 4.83%
Manufacturing 0.14% 1.02% 1.65% 3.83% 3.79% 4.25%
Transportion, Communication, Electric/Gas 0.23% 1.37% 2.17% 4.87% 4.89% 5.60%
Wholesale 0.14% 1.02% 1.94% 4.90% 5.03% 4.77%
Retail 0.16% 1.12% 1.76% 4.06% 4.13% 4.81%
Finance, Insurance, Real-Estate 0.15% 0.68% 1.28% 3.29% 3.10% 4.98%
Services 0.17% 1.19% 1.83% 3.94% 3.91% 5.25%
Public Administration 0.15% 0.50% 0.83% 1.61% 1.32% 3.66%
Energy 0.24% 1.22% 1.94% 5.43% 5.47% 5.62%
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.

2. FirstEnergy Transmission LLC (USD) 4.55% 4/1/2049 Reg S (03/25/2019): 500MM Senior Unsecured Notes, Price at Issuance 99.821, Yielding 4.56%.

Additional Commentary

NEW ISSUANCE WATCH: on 3/26/19 participants welcome a $300MM new corporate-bond offering by
Merna Reinsurance   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 03/26/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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