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Investment Grade Bond Research – May 1, 2019

Posted on May 1, 2019

RISK TAKING WAS SCALED BACK AS INVESTMENT-GRADE DEBT ROSE against its high-yield counterpart in net prices linked to actual trades. The Federal Reserve held interest rates at their current levels following the meeting on Wednesday. Jerome Powell stated softening inflation is likely to be “transient,” but if easing inflation persists it is “something we would be concerned about.” The 10-year note gained 0.7 basis points. S&P -0.57%, DOW -0.44%, NASDAQ -0.32%.

ACCORDING TO ADP THE PRIVATE SECTOR payrolls spiked adding 275,000 jobs in April surpassing estimates of 180,000 jobs.  Mark Zandi chief an economist at Moody noted, “This number overstates the case,” the market should not jump to conclusions based off this report.  Factory activity unexpectedly dipped to a two-and-half year low in April; the ISM fell to 52.8 compared to 55.3 in March. “The slowing manufacturing sector needs to be watched carefully as income gains are not strong enough to support solid growth,” 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,   Newell Rubbermaid Inc. (USD) 5.5% 4/1/2046 made analysts’ ‘Conviction Buy’ lists. (See the chart for  Newell Rubbermaid Inc. bonds below) Corey Mahoney cmahoney@advantagedata.com).
Key Gainers and Losers Volume Leaders
+   CVS Health Corp. 4.3% 3/25/2028 + 0.5%
  General Electric Capital Corp. 6.75% 3/15/2032 + 0.7%
–   First Tennessee Bank NA 2.95% 12/1/2019 -0.0%
General Motors Financial Co. Inc.   FLT% 4/13/2020
Comcast Corp.   4.6% 10/15/2038
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.16% 0.44% 0.30% 3.69% 4.76% 4.66%
Mining 0.10% 0.32% 0.32% 3.83% 6.11% 6.05%
Construction 0.15% 0.39% 0.43% 3.62% 4.43% 5.38%
Manufacturing 0.13% 0.41% 0.36% 3.22% 4.59% 5.20%
Transportion, Communication, Electric/Gas 0.14% 0.44% 0.48% 4.50% 5.90% 6.65%
Wholesale 0.13% 0.37% 0.52% 3.57% 5.39% 5.49%
Retail 0.16% 0.38% 0.14% 3.13% 4.55% 5.58%
Finance, Insurance, Real-Estate 0.12% 0.30% 0.34% 2.74% 3.99% 5.74%
Services 0.12% 0.33% 0.09% 2.89% 4.24% 5.95%
Public Administration 0.08% 0.31% 0.16% 1.34% 1.53% 3.94%
Energy 0.14% 0.39% 0.33% 4.18% 6.43% 6.54%
 
Total returns (non-annualized) by rating, market weighted.

unnamed - 2019-05-01T171934.583

New Issues New Issues [Continued]
1. Ford Motor Credit Co. (USD) 5.113% 5/3/2029 (04/30/2019):1250MM Senior Unsecured Notes, Price at Issuance 100, Yielding 5.11%.

2. Textron Inc. (USD) 3.9% 9/17/2029 (04/30/2019): 300MM Senior Unsecured Notes, Price at Issuance 99.911, Yielding 3.91%.

Additional Commentary

NEW ISSUANCE WATCH: on 5/01/19 participants welcome a $500MM new corporate-bond offering by
CNA Financial Corp.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 4/26/19, with a net outflow of $0.520B, year-to-date $13.8B 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 CR14)
SuperValu Inc. (5Y Sen USD MR14)
San Miguel Corp. (5Y Sen USD CR14)

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Loans and Credit Market Overview

SYNDICATED LOANS HIGHLIGHTS:

Deals recently freed for secondary trading, notable secondary activity:

  • iHeartCommunications Inc., Flexera Software Inc., JBS USA LLC, Sundyne US Purchaser

OVERALL CREDIT MARKET:
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 16 bp (basis points), as of 05/01/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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