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North American Bond Research – December 4, 2019

Posted on December 4, 2019

HIGH YIELD BOND RESEARCH

December 4, 2019

Bond Markets

STOCKS AND SOVEREIGN BOND YIELDS FELL IN RESPONSE TO TRUMP SUGGESTING THERE MIGHT NOT BE A PHASE 1 CHINA/US DEAL SIGNED BEFORE THE 2020 ELECTION. Corporate bond was up as investors pile into investment-grade bonds. The 10-year note lost 12.7 basis points. S&P -0.66%, Dow -1.01%, NASDAQ -0.55%.

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THE TRUMP ADMINISTRATION LOOKS TO PUSH AHEAD ON NEW TARIFFS ON OVER $150 BILLION OF GOODS SOLD TO THE UNITED STATES. Trump also levied tariffs on Argentina and Brazillian steel and aluminum. Trump also wants to levy $2.5 billion in tariffs on French goods because of France’s Tech tax. Trump is exploring similar tariffs on Poland, Italy and Belgium because they too are exploring a tech tax. High-yield edged out high-yield.Among high-grade bonds showing topmost price gains at appreciable volumes traded, JC Penney Co Inc (USD) 7.625% 3/1/2097 made analysts’ ‘Conviction Buy’ list. (See the chart below for JC Penney Co Inc bonds) Pierre Robert

Key Gainers and Losers

Volume Leaders

+	Cleveland Cliffs Inc. 5.75% 3/1/2025	+ 2.8%
	Chesapeake Energy Corp. 8% 1/15/2025	+ 6.6%
	AK Steel Holding Corp. 7% 3/15/2027	+ 3.2%
–	Pacific Gas & Electric Co. 6.05% 3/1/2034	-0.9%
	Intelsat Luxembourg SA 8.125% 6/1/2023	-4.1%
	HCA Inc. 5.25% 4/15/2025	-0.0%

Pacific Gas & Electric Co.   6.05% 3/1/2034
Ally Financial Inc.   4.25% 4/15/2021
Intelsat Luxembourg SA   8.125% 6/1/2023

Industry Returns Tracker

Industry	Past Day	Past Week	Past Month	Past Quarter	YTD	Past Year
Agriculture, Forestry, Fishing	0.14%	0.11%	0.14%	2.54%	17.58%	18.40%
Mining	-0.10%	-0.44%	-1.38%	-2.96%	3.55%	0.69%
Construction	0.01%	0.13%	0.42%	2.12%	15.85%	14.73%
Manufacturing	-0.04%	0.11%	0.87%	2.15%	12.41%	10.87%
Transportion, Communication, Electric/Gas	0.04%	0.09%	-0.02%	1.11%	13.86%	11.89%
Wholesale	-0.11%	-0.27%	-0.28%	0.38%	11.68%	9.83%
Retail	-0.10%	0.14%	-0.35%	1.55%	15.32%	12.62%
Finance, Insurance, Real-Estate	-0.01%	0.07%	0.49%	1.81%	13.68%	12.24%
Services	-0.05%	0.10%	0.44%	1.86%	12.79%	11.17%
Public Administration	-0.19%	-0.38%	0.35%	1.14%	14.14%	15.32%
Energy	-0.01%	-0.27%	-1.06%	-2.50%	4.91%	2.63%

Total returns (non-annualized) by rating, market weighted.

New Issues	Forward Calendar
1. Lithia Motors Inc. (USD) 4.625% 12/15/2027 144A (12/03/2019): 400MM Senior Unsecured Notes, Price at Issuance 100, Yielding 4.63%. 2. NCL Corp. LTD (USD) 3.625% 12/15/2024 144A (12/03/2019): 565MM Senior Unsecured Notes, Price at Issuance 100, Yielding 3.63%. 3. CCO Holdings LLC (USD) 4.75% 3/1/2030 (12/03/2019): 1200MM Senior Unsecured Notes, Price at Issuance 101.125, Yielding 4.61%.	1. Qmax Financial Holdings Inc.: $225MM, Expected 4th Quarter 2019 2. Calpine Corp.: $1.4B bonds, Expected Q4 2019 3. Diamondback Energy Inc.: High-yield notes, Expected Q4 2019

New Issues

Forward Calendar

1. Lithia Motors Inc. (USD) 4.625% 12/15/2027 144A (12/03/2019): 400MM Senior Unsecured Notes, Price at Issuance 100, Yielding 4.63%.

2. NCL Corp. LTD (USD) 3.625% 12/15/2024 144A (12/03/2019): 565MM Senior Unsecured Notes, Price at Issuance 100, Yielding 3.63%.

3. CCO Holdings LLC (USD) 4.75% 3/1/2030 (12/03/2019): 1200MM Senior Unsecured Notes, Price at Issuance 101.125, Yielding 4.61%.

1. Qmax Financial Holdings Inc.: $225MM, Expected 4th Quarter 2019

2. Calpine Corp.: $1.4B bonds, Expected Q4 2019

3. Diamondback Energy Inc.: High-yield notes, Expected Q4 2019

Additional Commentary

NEW ISSUANCE WATCH: on 11/14/19 participants welcome a $1175MM new corporate-bond offering by
Wolverine Ecrow The most recent data showed a money flowed out of ETF/mutual funds for the week ended 11/15/2019, with a net outflow of $240 Million.

Top Widening Credit Default Swaps (CDS)	Top Narrowing Credit Default Swaps (CDS)
Rite Aid Corp. (5Y Sen USD MR14) Weatherford International LTD (5Y Sen USD MR14) Hertz Corp. (5Y Sen USD CR14)	Ghana, Republic of (5Y Sen USD CR14) Road King Infrastructure LTD (5Y Sen USD CR14) Export Credit Bank of Turkey (5Y Sen USD CR14)

Loans and Credit Market Overview

SYNDICATED LOANS HIGHLIGHTS:

Deals recently freed for secondary trading, notable secondary activity:

Symantec Corp., Broadcom LTD, Toll Brothers Inc., Cole-Parmer Instrument Co.

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 34 bp (basis points), as of 12/03/19
Net negative capital flows into high-yield ETFs & mutual funds

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