Investment Grade Bond Research - June 4, 2019

THE FEDERAL RESERVE INDICATED A POSSIBLE RATE CUT if trade tensions escalate and begin to hamper the economy.  Jerome Powell stressed, “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion.”  Delivery of July West Texas Intermediate rose 0.54 percent reversing four straight sessions of declines.  Heightened global trade concerns and volatile markets caused crude to tumble as investors fear demand could be impacted.  The 10-year note further gained 5.8 basis points.  S&P +2.14%, DOW +2.06, NASDAQ +2.65%.

THE $1.2 TRILLION LEVERAGED LOAN MARKET will be under scrutiny as a Congressional committee analyzes the risks of aggressive underwriting.  High-profile bankruptcy’s including Toys ‘R’ Us have caught the eyes of regulators in recent years.  US Representative Gregory Meeks stated, “We need to look to discover where the risk may be before the fact,” he said. “We found out too late in the fiscal crisis of 2008.”  The committee is drafting potential legislation, The Leverage Lending Data and Analysis Act to examine and oversee leveraged lending activities and procedures.  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) 7.625% 4/15/2024 made analysts' 'Conviction Buy' lists. (See the chart for ADI indexes above.) Corey Mahoney (cmahoney@advantagedata.com).

 

Key Gainers and Losers	Volume Leaders
+   Dowdupont Inc. 5.419% 11/15/2048 + 0.4%   Citigroup Inc. 4.65% 7/23/2048 + 0.1% -   Comcast Corp. 4.7% 10/15/2048 -0.5%	CVS Health Corp.   4.3% 3/25/2028 Citigroup Inc.   3.2% 10/21/2026

Industry Returns Tracker

Industry Past Day Past Week Past Month Past Quarter YTD Past Year Agriculture, Forestry, Fishing 0.35% 1.14% 2.22% 4.61% 6.95% 5.10% Mining 0.15% 0.71% 1.16% 3.93% 7.30% 6.85% Construction 0.35% 1.05% 1.89% 4.44% 6.08% 6.29% Manufacturing 0.22% 0.96% 1.56% 4.01% 5.91% 6.30% Transportion, Communication, Electric/Gas 0.28% 1.34% 2.10% 5.53% 7.83% 9.10% Wholesale 0.14% 0.72% 1.42% 3.85% 6.55% 6.66% Retail 0.23% 1.10% 1.79% 4.18% 6.27% 6.69% Finance, Insurance, Real-Estate 0.20% 0.82% 1.51% 3.53% 5.58% 6.81% Services 0.28% 1.20% 2.01% 4.23% 6.23% 7.37% Public Administration 0.17% 0.78% 1.32% 2.68% 2.92% 4.66% Energy 0.18% 0.80% 1.31% 4.17% 7.61% 8.78%   Total returns (non-annualized) by rating, market weighted.

New Issues	New Issues [Continued]
1. Public Service Enterprise Group (USD) 2.875% 6/15/2024 (06/03/2019): 750MM Senior Unsecured Notes, Price at Issuance 99.953, Yielding 2.88%. 2. Home Depot Inc. (USD) 2.95% 6/15/2029 (06/03/2019): 1000MM Senior Unsecured Notes, Price at Issuance 99.426, Yielding 3.02%.

NEW ISSUANCE WATCH: on 6/3/19 participants welcome a $425MM new corporate-bond offering by Dayton Power & Light Co. The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 5/31/19, with a net outflow of $1.3B, year-to-date $9.8B 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)	Cable & Wireless Communication (5Y Sen USD CR14) SuperValu Inc. (5Y Sen USD MR14)

Loans and Credit Market Overview

SYNDICATED LOANS HIGHLIGHTS:

Deals recently freed for secondary trading, notable secondary activity:

• Packers Holdings, Charles Schwab Corp., Tundra Energy Marketing , Louis Dreyfus 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 16 bp (basis points), as of 06/04/19
• Net positive capital flows into high-yield ETFs & mutual funds

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