High Yield Bond Research - July 9, 2019

BOND INVESTORS TURN BEARISH on longer-dated U.S. government debt following the release of asound June payroll report and reducing bets the Fed will cut interest rates this month.  Analysts say a prolonged inverted yield curve is a predictor of a recession and has foreshadowed the last nine recessions.  “It has to stay there for a couple of months before you start to worry. One month or so, we wouldn’t consider it a lengthy period of time,” said Falconio. “We believe it’s an indicator of a long-term recession, however, it isn’t signaling a recession any time soon.”  The spread between the two and ten-year notes narrowed to 14.2 basis points, the closest since May 31^st.  The 10-year note advanced 0.8 basis points.  S&P +0.12%, DOW -0.08, NASDAQ +0.54%

 

JOB OPENINGS SLIGHTLY FELL to 7.32 million remaining near record highs as companies hired 5.73 million people in May.  Hiring dwindled in the manufacturing and heavy-industry sectors largely due to the ongoing trade spat between the U.S. and China.  Openings outnumber the number of unemployed for the fifteenth straight month as employers struggle to find skilled labor.  ADI proprietary index data showed a net yield increment for high-yield versus high-grade bonds. High-grade edged out high-yield.  Among high-grade bonds showing topmost price gains at appreciable volumes traded, Transcontinental Gas Pipe Corp. (USD) 5.4% 8/15/2041 made analysts' 'Conviction Buy' lists. (See the chart for ADI Indices above.) Corey Mahoney (cmahoney@advantagedata.com).

 

Key Gainers and Losers	Volume Leaders
+   Pacific Gas & Electric Co. 6.05% 3/1/2034 + 2.3%   Western Digital Corp. 4.75% 2/15/2026 + 0.1% -   US Steel Corp. 6.875% 8/15/2025 -0.5%	United States STL Corp. New   6.25% 3/15/2026 Mednax Inc.   5.25% 12/1/2023 Reg S

Industry Returns Tracker

Industry Past Day Past Week Past Month Past Quarter YTD Past Year Agriculture, Forestry, Fishing -0.04% 0.26% 5.25% 5.82% 12.31% 14.64% Mining -0.16% -0.38% 0.58% -1.49% 7.46% 2.25% Construction -0.04% -0.10% 1.61% 3.37% 11.07% 9.26% Manufacturing -0.02% -0.02% 1.55% 2.20% 9.33% 7.93% Transportion, Communication, Electric/Gas -0.01% -0.11% 1.75% 3.26% 10.23% 9.42% Wholesale -0.08% 0.00% 1.74% 2.88% 10.36% 7.93% Retail 0.03% -0.12% 1.66% 3.78% 12.35% 9.63% Finance, Insurance, Real-Estate -0.05% -0.04% 1.65% 2.72% 10.21% 9.61% Services -0.02% -0.12% 1.27% 2.50% 10.02% 9.41% Public Administration -0.18% 0.43% 2.29% 3.69% 9.92% 14.01% Energy -0.15% -0.34% 0.60% -0.49% 7.84% 2.80%   Total returns (non-annualized) by rating, market weighted.

New Issues	Forward Calendar
(None Current 07/09/2019)	1. Atlantica Tender Drilling Ltd: $140MM, Expected Q3 2019 2. Alpha Auto Group: $225MM, Expected Week of 6/24

NEW ISSUANCE WATCH: on 7/2/19 participants welcome a $243MM new corporate-bond offering by AAG FH LP/AAG FH Finco 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)
Hovnanian Enterprises Inc. (5Y Sen USD XR14) Controladora Mabe SA de CV (5Y Sen USD CR14)	San Miguel Corp. (5Y Sen USD CR14) Atmos Energy Corp. (5Y Sen USD MR14)

Loans and Credit Market Overview

SYNDICATED LOANS HIGHLIGHTS:

Deals recently freed for secondary trading, notable secondary activity: 

• Piaggio & C. SpA, Goshawk Aviation Ltd, Valence Surface Technologies

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 11 bp (basis points), as of 07/09/19
• Net positive capital flows into high-yield ETFs & mutual funds 

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