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Investment Grade Bond Research – May 2, 2019

Posted on May 2, 2019

The Dow Jones continued to fall Thursday, dropping 122.35 points as the Federal Reserve refused to lower interest rates. Worker productivity in the U.S. is advancing at the fastest rate since 2010. Additionally, 10-year U.S. Treasury notes rose 3.6 basis pointsS&P -0.21%, Dow -0.46%, NASDAQ  -0.16%.

Averages for 15 and 30-year fixed-rate mortgages have retreated a bit, after a month of steady increase. “Slightly weaker inflation and labor economic data caused mortgage rates to dip this week,” Sam Khater, Freddie Mac’s chief economist, said in a statement. For the near future, the housing market appears relatively steady. Gold fell 12.4 points amid bearish outside markets.  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. (USD) 3.75% 8/15/2042 made analysts’ ‘Conviction Buy’ lists. (See the chart for ADI Indexes bonds above) Andrew Robartes
Key Gainers and Losers Volume Leaders
+   Apple Inc. 2.25% 2/23/2021 + 0.1%
  Bank of America Corp. FLT% 10/1/2021 + 0.0%
–   CVS Health Corp. 4.3% 3/25/2028 -0.3%
General Electric Co.   FLT% PERP (1)
Ford Motor Credit Co.   4.389% 1/8/2026
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.16% 0.45% 0.47% 3.48% 4.97% 4.66%
Mining 0.04% 0.08% 0.88% 3.46% 6.37% 6.50%
Construction 0.06% 0.14% 0.74% 3.08% 4.27% 5.48%
Manufacturing 0.02% 0.18% 0.72% 2.71% 4.51% 5.34%
Transportion, Communication, Electric/Gas 0.06% 0.19% 1.03% 3.88% 5.84% 6.92%
Wholesale 0.00% 0.17% 0.79% 3.23% 5.11% 5.86%
Retail 0.00% 0.12% 0.58% 2.79% 4.53% 5.75%
Finance, Insurance, Real-Estate -0.02% 0.12% 0.62% 2.42% 4.00% 5.81%
Services 0.03% 0.11% 0.55% 2.55% 4.37% 6.27%
Public Administration -0.03% 0.08% 0.40% 1.40% 1.50% 3.93%
Energy 0.02% 0.11% 0.84% 3.66% 6.59% 6.91%
Total returns (non-annualized) by rating, market weighted.

unnamed - 2019-05-02T173215.318

New Issues New Issues [Continued]
1. CNA Financial Corp. (USD) 3.9% 5/1/2029 (05/01/2019): 500MM Senior Unsecured Notes, Price at Issuance 99.902, Yielding 3.91%.

2. Goldman Sachs Group Inc. (USD) 3% 5/9/2025 (05/02/2019):95MM Unsecured Notes, Price at Issuance 100, Yielding 3%.

Additional Commentary

NEW ISSUANCE WATCH: on 5/01/19 participants welcome a $500MM new corporate-bond offering by
Starbucks 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)
Rite Aid Corp. (5Y Sen USD XR14)
Hovnanian Enterprises Inc. (5Y Sen USD MR14)
SuperValu Inc. (5Y Sen USD MR14)
San Miguel Corp. (5Y Sen USD CR14)

unnamed (95)

Loans and Credit Market Overview


Deals recently freed for secondary trading, notable secondary activity:

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

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 05/02/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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