High Yield Bond Research - July 1, 2019

MANUFACTURING ACTIVITY DECLINES IN JUNE to nearly a three year low indicating the trade spat with China is impacting factory output. The gauge of activity slipped to 51.7 from 52.1 marking the third straight month of deteriorating data.  Senior money market economist Thomas Simmons at Jefferies mentioned, “If the White House is able to forge a solid trade deal with China, both investment spending and manufacturing activity will again improve.”  The 10-year note advanced 2.0 basis points.  S&P +0.77%, DOW +0.44, NASDAQ +1.06%

OPEC ANNOUNCES AN EXTENSION to output cuts until March of 2020 intending to support the current prices preventing a deterioration in the future.  “Worsening tensions between the U.S. and Iran add potential for oil price volatility that could be tricky for OPEC members to manage.”  Saudi Arabia is seeking to achieve $70 per barrel oil in order to avoid a budget deficit.  Delivery of August WTI crude settled around $59.01 per barrel.  Construction spending fell 0.8 percent in May and April’s data was revised higher than previously reported.  Residential construction saw a significant dip in May contractingfor the fifth consecutive quarter. 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) 8.75% 4/15/2022 made analysts' 'Conviction Buy' lists. (See the chart for Frontier Communications Corp. bonds below.) Corey Mahoney (cmahoney@advantagedata.com).

 

Key Gainers and Losers	Volume Leaders
+   Petrobras Global Finance BV 6.85% 6/5/2115 + 1.1%   Teva Pharmaceuticals Fin BV 6.75% 3/1/2028 + 0.8% -   Western Digital Corp. 4.75% 2/15/2026 -1.2%	Petrobras Global Finance BV   6.85% 6/5/2115 US Steel Corp.   6.875% 8/15/2025

Industry Returns Tracker

Industry Past Day Past Week Past Month Past Quarter YTD Past Year Agriculture, Forestry, Fishing 0.23% 0.47% 5.76% 5.13% 12.68% 15.13% Mining 0.09% 0.14% -0.10% 0.01% 7.85% 2.80% Construction -0.11% -0.26% 2.08% 3.69% 10.17% 8.40% Manufacturing 0.04% -0.04% 1.66% 2.41% 8.93% 7.32% Transportion, Communication, Electric/Gas 0.09% 0.04% 2.55% 3.94% 10.36% 9.77% Wholesale 0.06% 0.04% 2.14% 3.23% 10.29% 7.46% Retail 0.19% 0.00% 1.86% 4.56% 12.10% 9.09% Finance, Insurance, Real-Estate 0.04% 0.05% 2.05% 3.21% 10.05% 9.62% Services -0.01% -0.36% 1.68% 3.06% 9.61% 8.68% Public Administration 0.32% 0.73% 2.40% 4.01% 9.84% 14.38% Energy 0.04% 0.15% -0.11% 0.07% 7.66% 2.34%   Total returns (non-annualized) by rating, market weighted.

New Issues	Forward Calendar
(None Current 07/01/2019)	1. Alpha Auto Group: $225MM, Expected Week of 6/24 2. Sirius Computers: $300MM, Expected Week of 6/24

NEW ISSUANCE WATCH: on 6/28/19 participants welcome a $300MM new corporate-bond offering by Granite Merger Sub 2, Inc. The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 6/21/19, with a net outflow of $602MM, year-to-date $8.9B 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) Atmos Energy Corp. (5Y Sen USD MR14)

Loans and Credit Market Overview

SYNDICATED LOANS HIGHLIGHTS:

Deals recently freed for secondary trading, notable secondary activity: 

• Valence Surface Technologies, Moneygram Intl. Inc., Vici Properties LLC, Vidrala SA

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 23 bp (basis points), as of 07/01/19
• Net positive capital flows into high-yield ETFs & mutual funds 

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