Market Summaries

Investment Grade Bond Research - July 12, 2019

Written by Andrew Robartes | Jul 12, 2019 9:09:23 PM

THE YIELD GAP BETWEEN INVESTMENT GRADE and high yield corporate bonds is at its lowest since 2007. Just 60 basis points separate yields of the lowest-rated investment grade debt and the highest-rated high yield debt. As trends among corporate and government debt continue to point to economic downturn, many investors are selling riskier junk bonds. S&P +0.46%, DOW +0.90, NASDAQ +0.59%

IN CORPORATE BOND NEW ISSUANCE, E.W. Scripps Company priced $500 million in senior notesthrough its subsidiary company, Escrow Inc. The notes, which were upsized by $100 million due to strong demand, will yield 5.875% and mature on July 15, 2027. Scripps plans to use the proceeds in part to facilitate the acquisition of 8 television stations, and to repay outstanding debt. ADI proprietary index data showed a net yield increment for high-yield versus high-grade bondsHigh-yield edged out high-grade. Among high-yield bonds showing topmost price gains at appreciable volumes traded, Chesapeake Energy Corp. (USD) 7.5% 10/1/2026 made analysts' 'Conviction Buy' lists. (See the chart for ADI Indices above.) Andrew Robartes (arobartes@advantagedata.com).
 
Key Gainers and Losers Volume Leaders
+   Apple Inc. 1.8% 11/13/2019 + 0.1%
  IBM Corp. 4.25% 5/15/2049 + 0.8%
-   Abbvie Inc. 4.4% 11/6/2042 -0.1%
  3M Co. 2.25% 3/15/2023 -0.0%
PepsiCo. Inc.   2% 4/15/2021
CVS Health Corp.   5.05% 3/25/2048
Industry Returns Tracker
Industry Past Day Past Week Past Month Past Quarter YTD Past Year
Agriculture, Forestry, Fishing -0.01% -0.15% 0.74% 2.43% 6.51% 5.14%
Mining -0.27% -0.91% 1.46% 2.92% 8.85% 7.95%
Construction -0.26% -0.70% 1.39% 3.52% 6.95% 7.43%
Manufacturing -0.23% -0.77% 1.31% 3.31% 7.34% 7.06%
Transportion, Communication, Electric/Gas -0.35% -1.05% 1.64% 4.18% 9.55% 9.56%
Wholesale -0.22% -0.81% 0.87% 3.13% 7.88% 7.39%
Retail -0.38% -0.97% 1.46% 3.48% 7.82% 7.95%
Finance, Insurance, Real-Estate -0.19% -0.55% 0.82% 2.58% 6.13% 7.18%
Services -0.29% -0.87% 1.22% 3.34% 7.41% 8.05%
Public Administration -0.29% -0.32% 0.27% 1.80% 3.06% 4.55%
Energy -0.27% -0.98% 1.55% 3.01% 9.17% 8.48%
 
Total returns (non-annualized) by rating, market weighted.

New Issues New Issues [Continued]

1. Builders FirstSource Inc. (USD) 6.75% 6/1/2027 Reg S (07/11/2019): 75MM Secured Notes, Price at Issuance 104.5, Yielding 6.02%.

2. Mitsubishi UFJ Financial Group Inc. (USD) 3.195% 7/18/2029 (07/11/2019): 1750MM Senior Unsecured Notes, Price at Issuance 100, Yielding 3.2%.

 

Additional Commentary

NEW ISSUANCE WATCH: on 7/11/19 participants welcome a $1000MM new corporate-bond offering by Nationwide Building Society.  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 CR14)
Hovnanian Enterprises Inc. (5Y Sen USD MR14)
SuperValu Inc. (5Y Sen USD XR14)
San Miguel Corp. (5Y Sen USD CR14)

Loans and Credit Market Overview

SYNDICATED LOANS HIGHLIGHTS:

Deals recently freed for secondary trading, notable secondary activity:
  • Starwood Property Trust Inc., Heritage Power, LLC, Piaggio & C. SpA, Goshawk Aviation Ltd
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 17 bp (basis points), as of 07/12/19
  • Net positive capital flows into high-yield ETFs & mutual funds

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