High Yield Bond Research - June 21, 2019

Posted by Andrew Robartes on Jun 21, 2019 5:09:56 PM
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TODAY MARKED THE END OF A STRONG WEEK for US stocks, after news of a potential federal interest rate cut boosted investors’ sentiment. Federal Reserve chairman Jerome Powell hasn’t set any parameters on the cut, but analysts are predicting it will be more than 25 basis points. The next monetary policy committee meeting will be held on July 31st. 10-Year Treasury note yields rose 3.5 basis points today, after dipping below 2% yesterday. S&P -0.13%, DOW -0.13%, NASDAQ -0.24%.
unnamed - 2019-05-28T172139.160
IN THE CORPORATE BOND SPACE, news of an interest rate cut from the Federal Reserve indicates a positive environment for issuing new debt. As Treasury yields have declined, corporate bond spreads have remained relatively low, inspiring optimism among investors. John Sheehan, a fixed-income portfolio manager at Osterweis Capital Management stated, “In this environment, where financial assets are all moving in the same direction, it’s incredibly beneficial to [debt] issuers”. 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,  Pacific Gas & Electric Co. (USD) 3.5% 6/15/2025 made analysts' 'Conviction Buy' lists. (See the chart for Pacific Gas & Electric Co. below.) Andrew Robartes (arobartes@advantagedata.com).
Key Gainers and Losers Volume Leaders
+   Pacific Gas & Electric Co. 6.05% 3/1/2034 + 1.0%
  General Motors Co. 6.25% 10/2/2043 + 2.8%
-   Sprint Corp. 7.125% 6/15/2024 -0.8%
  Western Digital Corp. 4.75% 2/15/2026 -0.3%
Revlon Consumer Products Corp.   5.75% 2/15/2021
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing 0.93% 2.49% 5.79% 4.92% 11.46% 13.30%
Mining 1.10% 0.90% -1.01% 0.82% 7.89% 2.76%
Construction 0.44% 0.90% 2.32% 4.39% 10.50% 8.21%
Manufacturing 0.50% 0.83% 1.46% 2.43% 8.60% 6.82%
Transportion, Communication, Electric/Gas 0.56% 1.23% 2.43% 4.17% 9.99% 9.20%
Wholesale 0.42% 0.78% 2.06% 3.64% 10.50% 6.91%
Retail 0.42% 0.63% 2.12% 5.16% 12.21% 9.36%
Finance, Insurance, Real-Estate 0.44% 0.81% 1.89% 2.90% 9.40% 8.82%
Services 0.46% 0.76% 2.10% 3.44% 10.01% 8.58%
Public Administration 0.32% 0.84% 2.19% 2.95% 9.25% 14.92%
Energy 1.04% 0.95% -0.85% 0.99% 7.79% 2.56%
Total returns (non-annualized) by rating, market weighted.

unnamed - 2019-06-21T170323.595

New Issues Forward Calendar

1. Norbord Inc. (USD) 5.75% 7/15/2027 Reg S (06/20/2019): 350MM Secured Notes, Price at Issuance 100, Yielding 5.75%.

2. Avis Budget Car Rental LLC (USD) 5.75% 7/15/2027 144A (06/20/2019): 400MM Senior Unsecured Notes, Price at Issuance 100, Yielding 5.75%.

1. Diamondback Energy Inc.: High-yield notes, Expected Q2 2019

2. E.W. Scripps: $1.85B term loans and unsecured debt, Expected Q2 2019

Additional Commentary

NEW ISSUANCE WATCH: on 6/20/19 participants welcome a $350MM new corporate-bond offering by
Nordbord Inc. The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 6/7/19, with a net outflow of $3.2B, year-to-date $6.6B flowed into high-yield.
Top Widening Credit Default Swaps (CDS) Top Narrowing Credit Default Swaps (CDS)
Weatherford International LTD (5Y Sen USD MR14)
Hertz Corp. (5Y Sen USD CR14)
Road King Infrastructure LTD (5Y Sen USD CR14)
SuperValu Inc. (5Y Sen USD MR14)

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Loans and Credit Market Overview


Deals recently freed for secondary trading, 
notable secondary activity: 
  • Vidrala SA, Hilton Worldwide Finance LLC, US Renal Care Inc., Perforce Software Inc.
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 22 bp (basis points), as of 06/21/19
  • Net positive capital flows into high-yield ETFs & mutual funds 

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Topics: Investment Grade, Loans, Analytics, bonds, junk bonds, bond market, market analytics, New Issues, News, Syndicated Bonds, syndicated, research, market update

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