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North American High Yield Bond Research – April 3, 2019

Posted on April 3, 2019
JUNK BONDS REGAINED FAVOR as a risk-on sentiment prevailed against investment grade debt.  U.S. mortgage applications surge to levels not seen since October 2016 aided by a wave of homeowners refinancing.  Plummeting interest rates also led to the uptick in refinancing activity which increased 47.4 percent from the previous week. The 10-year Treasury note gained 4.7 basis points. S&P +0.2%, DOW-0.03%, NASDAQ +0.56%
U.S. SERVICES SECTOR GREW AT ITS SLOWEST PACE in 19-months as the ISM non-manufacturing index declined to 56.1 in February from 59.7 in January.  The services sector is struggling with employment issues and sourcing skilled labor, “they still have underlying concerns about employment resources and capacity constraints.”  Orders for heavy-duty trucks dipped 6.7 percent from February and sank 66 percent in March compared to one year prior.  The drop in orders is sending signals of softening demand despite the extensive backlogs.  According to ADP, the private sector added 129,000 jobs in March, with the majority of the increase coming from the service sector despite weak growth. 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,  Frontier Communications Corp. (USD) 7.125% 1/15/2023  made analysts’ ‘Conviction Buy’ lists. (See the chart for  Frontier Communications Corp. below)   Corey Mahoney cmahoney@advantagedata.com).
Key Gainers and Losers Volume Leaders
+   EDP Finance BV 5.25% 1/14/2021 144A + 0.1%
  Envision Healthcare Corp. 8.75% 10/15/2026 144A + 0.5%
–   CCO Hldg LLC 5.375% 5/1/2025 144A -0.2%
Staples Inc.   8.5% 9/15/2025 144A
Tesla Motors Inc.   5.3% 8/15/2025 144A
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.15% -0.53% 0.99% 5.58% 5.78% 4.29%
Mining 0.14% 0.58% 0.94% 8.29% 8.39% 3.85%
Construction 0.00% 0.65% 1.75% 6.95% 6.92% 4.89%
Manufacturing 0.02% 0.34% 1.07% 6.70% 6.70% 5.88%
Transportion, Communication, Electric/Gas -0.01% 0.52% 1.21% 6.47% 6.40% 6.66%
Wholesale 0.06% 0.49% 0.72% 7.16% 7.03% 3.99%
Retail 0.04% 0.22% 0.70% 7.42% 7.39% 4.41%
Finance, Insurance, Real-Estate 0.05% 0.24% 1.14% 6.69% 6.66% 6.16%
Services -0.01% 0.40% 0.90% 6.47% 6.52% 6.40%
Public Administration 0.12% 0.13% 0.64% 6.11% 5.90% 10.89%
Energy 0.10% 0.44% 1.01% 8.18% 8.18% 3.68%
 
Total returns (non-annualized) by rating, market weighted.

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New Issues Forward Calendar
1. Rockies Express Pipeline LLC (USD) 4.95% 7/15/2029 (04/03/2019): 550MM Senior Unsecured Notes, Price at Issuance 99.826, Yielding 4.97%. 1. ADT Inc.: $2.75B, Expected Q2 2019

2. Twinset Spa: ¬170M 5 year senior secured floating-rate notes, Expected Q1 2019

Additional Commentary

NEW ISSUANCE WATCH: on 4/02/19 participants welcome a $400MM new corporate-bond offering by
Sable Intl. Finance.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 3/29/19, with a net inflow of $0.589B, year-to-date $10.6B 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)
SuperValu Inc. (5Y Sen USD XR14)
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:

  • Crossamerica Partners LP, Ryman Healthcare Group, FLIR Systems Inc., Kirby Corp.

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 19 bp (basis points), as of 04/03/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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