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North American Bond Research – January 9, 2020

Posted on January 9, 2020
HIGH YIELD BOND RESEARCH
January 9, 2020

Bond Markets

STOCK MARKETS RALLIED TO FRESH HIGHS AS THE CONFLICT WITH IRAN SEEMED TO PULL BACK FROM CONFRONTATION. 10-year note lost 1.6 basis points. S&P +0.67%, Dow  +0.78%, NASDAQ  +0.81%.

A NUMBER OF ANALYST HAVE STATED THAT THESE NEW HIGHS HAVE ONLY A BASIS IN A CONFLICT BEING AVERTED. They feel the markets are too frothy and warn of a correction. Among high-grade bonds showing topmost price gains at appreciable volumes traded, Level 3 Financing Inc. (USD) 5.375% 8/15/2022 made analysts’ ‘Conviction Buy’ list. (See the chart below for Level 3 Financing Inc. bonds) Pierre Robert
Key Gainers and Losers Volume Leaders
+   GrubHub Inc. 5.5% 7/1/2027 144A + 2.4%
  First Quantum Minerals LTD 7.5% 4/1/2025 144A + 0.2%
  Petrobras Global Finance BV 8.75% 5/23/2026 + 1.1%
–   Antero Resources Corp. 5.625% 6/1/2023 -0.7%
  Tenneco Inc. 5% 7/15/2026 -5.2%
  Range Resources Corp. 4.875% 5/15/2025 -0.0%
Transocean Inc.   8% 2/1/2027 144A
Altice Financing SA   5% 1/15/2028 144A
GrubHub Inc.   5.5% 7/1/2027 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.13% 0.57% 1.84% 3.44% 0.51% 20.45%
Mining 0.29% 1.21% 6.26% 5.32% 1.22% 8.86%
Construction 0.08% 0.17% 0.87% 2.63% 0.18% 16.02%
Manufacturing 0.06% 0.27% 1.48% 3.70% 0.35% 13.28%
Transportion, Communication, Electric/Gas 0.04% 0.25% 1.79% 2.11% 0.34% 14.42%
Wholesale 0.12% 0.43% 1.82% 2.78% 0.47% 13.02%
Retail 0.09% 0.23% 1.81% 2.88% 0.27% 16.07%
Finance, Insurance, Real-Estate 0.06% 0.24% 1.40% 2.59% 0.31% 13.77%
Services 0.06% 0.22% 1.34% 2.92% 0.26% 13.25%
Public Administration -0.38% -0.17% 1.18% 2.41% 0.03% 14.91%
Energy 0.24% 1.12% 6.20% 4.69% 1.13% 9.55%
 
Total returns (non-annualized) by rating, market weighted.

New Issues Forward Calendar
1. WPX Energy Inc. (USD) 4.5% 1/15/2030 (01/08/2020): 900MM Senior Unsecured Notes, Price at Issuance 100, Yielding 4.5%.

2. Nabors Industries LTD (USD) 7.25% 1/15/2026 144A (01/08/2020): 600MM Senior Unsecured Notes, Price at Issuance 100, Yielding 7.25%.

3. Nabors Industries LTD (USD) 7.5% 1/15/2028 144A (01/08/2020): 400MM Senior Unsecured Notes, Price at Issuance 100, Yielding 7.5%.

 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 31 bp (basis points), as of 01/09/2020
  • Net negative capital flows into high-yield ETFs & mutual funds

 

INVESTMENT GRADE BOND RESEARCH
January 9, 2020

Bond Markets

STOCK MARKETS RALLIED TO FRESH HIGHS AS THE CONFLICT WITH IRAN SEEMED TO PULL BACK FROM CONFRONTATION. 10-year note lost 1.6 basis points. S&P +0.67%, Dow  +0.78%, NASDAQ  +0.81%.

A NUMBER OF ANALYST HAVE STATED THAT THESE NEW HIGHS HAVE ONLY A BASIS IN A CONFLICT BEING AVERTED. They feel the markets are too frothy and warn of a correction. ADI proprietary index data showed a net yield increment for high-grade versus high-yield bonds. High-yield edged out high-yield. Among high-grade bonds showing topmost price gains at appreciable volumes traded,  CVS Caremark Corp. (USD) 5.75% 5/15/2041  made analysts’ ‘Conviction Buy’ list. (See the chart below for CVS Caremark Corp. bonds) Pierre Robert
Key Gainers and Losers Volume Leaders
+   CVS Health Corp. 5.05% 3/25/2048 + 0.6%
  Energy Transfer Partners LP 6.25% 4/15/2049 + 1.1%
  Viacom Inc. 4.375% 3/15/2043 + 0.7%
–   Hewlett-Packard Co. 3.6% 10/15/2020 -0.0%
  Visa Inc. 2.8% 12/14/2022 -0.0%
  Toronto-Dominion Bank 2.5% 12/14/2020 -0.2%
CVS Health Corp.   5.05% 3/25/2048
Energy Transfer Partners LP   6.25% 4/15/2049
Viacom Inc.   4.375% 3/15/2043
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.13% 0.25% 1.48% 1.15% 0.26% 6.80%
Mining -0.13% 0.48% 1.74% 0.95% 0.62% 13.50%
Construction -0.03% 0.55% 1.07% 0.80% 0.64% 10.83%
Manufacturing -0.10% 0.38% 0.84% 0.78% 0.50% 12.03%
Transportion, Communication, Electric/Gas -0.10% 0.61% 1.19% 0.73% 0.80% 15.36%
Wholesale -0.12% 0.33% 1.06% 1.38% 0.45% 14.89%
Retail -0.16% 0.36% 0.90% 0.55% 0.53% 13.57%
Finance, Insurance, Real-Estate -0.05% 0.32% 0.71% 0.76% 0.40% 10.39%
Services -0.09% 0.31% 0.73% 0.50% 0.42% 11.31%
Public Administration -0.02% 0.17% 0.41% -0.17% 0.23% 4.81%
Energy -0.12% 0.51% 1.91% 1.13% 0.64% 14.43%
 
Total returns (non-annualized) by rating, market weighted.

New Issues New Issues [Continued]
1. Energy Transfer Operating, LP (USD) 2.9% 5/15/2025 (01/08/2020): 1000MM Senior Unsecured Notes, Price at Issuance 99.924, Yielding 2.91%.

2. Hess Midstream Operations LP (USD) 5.625% 2/15/2026 Reg S (01/08/2020): 794MM Senior Unsecured Notes.

3. Barclays Bank PLC (USD) 1.769% 4/9/2020 (01/08/2020): 115MM Senior Unsecured Notes, Price at Issuance 100, Yielding 1.77%.

Additional Commentary

NEW ISSUANCE WATCH: on 11/14/19 participants welcome a $1000MM new corporate-bond offering by
Nationwide Financial Service. 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 31 bp (basis points), as of 01/09/2020
  • Net positive capital flows into high-yield ETFs & mutual funds

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