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Investment Grade Bond Research – March 27, 2019

Posted on March 27, 2019

THE TEN-YEAR TREASURY YIELD FALLS BELOW 2.4 PERCENT sending equities into free-fall before rising trimming losses prior to market close. Investors fear of a looming recession given the yield inversion however, “Based on history, we get another year and a half or so before recession”. In addition, markets pounder whether the Fed will cut interest rates this year in wake of wake economic data. The 10-year U.S. Treasury note sank 3.9 basis points. S&P -0.46%, Dow -0.13%, NASDAQ -0.63%

LYFT TO IPO ABOVE THE TARGETED RANGE on Friday at a value exceeding $23 billion in market cap.  Shares are likely to price in the $70s, 20 percent above estimates upon excess demand during the roadshow filling up its book quickly.  U.S. Bankruptcy Court in San Francisco approved a $5.5 billion bankruptcy loan for PG&E following the destructive Camp Fire in November 2018.  The company filed for Chapter 11 bankruptcy in January in anticipation of their equipment to be the cause.  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,   Northern States Power Co. of Wisconsin (USD) 4.2% 9/1/2048made analysts’ ‘Conviction Buy’ lists. (See the chart for  Pacific Gas & Electric Co. below) Corey Mahoney
Key Gainers and Losers Volume Leaders
+   Daimler Finance NA LLC FLT% 2/22/2021 144A + 0.1%
  Cox Communications Inc. 2.95% 6/30/2023 144A + 0.3%
–   Nissan Motor Acceptance Corp. FLT% 7/13/2020 144A -0.1%
Dell Intl LLC   5.3% 10/1/2029 144A
Polar Tankers Inc.   5.951% 5/10/2037 144a
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.44% 1.19% 1.60% 4.59% 4.36% 4.61%
Mining 0.10% 1.28% 1.74% 5.61% 5.29% 5.27%
Construction 0.10% 1.26% 1.89% 4.45% 4.05% 4.93%
Manufacturing 0.07% 1.16% 1.62% 4.21% 3.92% 4.37%
Transportion, Communication, Electric/Gas 0.09% 1.58% 2.11% 5.34% 5.01% 5.77%
Wholesale 0.09% 1.14% 1.76% 4.71% 4.61% 4.74%
Retail 0.08% 1.32% 1.70% 4.48% 4.22% 4.95%
Finance, Insurance, Real-Estate 0.04% 0.79% 1.24% 3.58% 3.26% 5.12%
Services 0.07% 1.32% 1.73% 4.29% 3.98% 5.33%
Public Administration 0.00% 0.43% 0.60% 1.49% 1.13% 3.45%
Energy 0.09% 1.35% 1.87% 5.80% 5.56% 5.79%
Total returns (non-annualized) by rating, market weighted.

New Issues New Issues [Continued]
1. Mars Inc. (USD) 3.875% 4/1/2039 144A (03/26/2019): 700MM Senior Unsecured Notes, Price at Issuance 99.875, Yielding 3.88%.

2. NatWest Markets PLC (USD) FLT% 9/29/2022 144A (03/26/2019):300MM Senior Unsecured Notes, Price at Issuance 100.

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)
Hertz Corp. (5Y Sen USD XR14)
Hovnanian Enterprises Inc. (5Y Sen USD MR14)
Export Credit Bank of Turkey (5Y Sen USD CR14)
Atmos Energy Corp. (5Y Sen USD MR14)

Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

  • Syneos Health, Inc., Fred Olsen Wind LTD, Carbonite Inc, HotelBeds, Nine West Holdings Inc.

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 03/27/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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