Investment Grade Bond Research - March 22, 2019

RISK-OFF SENTIMENT PREVAILED AS INVESTMENT-GRADE DEBT significantly outpaced junk bonds in net prices linked to actual trades.  Equities receded after the release of weak economic data, despite the 11.8 percent increase jump in existing home sales in February.  A cooling trend has emerged, “Homes aren’t flying off the market as they have been” Cheryl Young senior economist at Trulia.  The 10-year U.S. Treasury note plummeted 9.6 basis point.  S&P -1.90%, Dow -1.77%, NASDAQ -2.50%

YIELD CURVE INVERSION SENDS SHOCKWAVES through the market spooking investors and sparking recession anxieties.  The 3-month bill and the 10-year note inverted for the first time since 2007 after the release of disappointing U.S. manufacturing data.  The Purchasing Managers Index declined 0.5 percent to 52.5, missing expectations of 53.6 further solidifying the Feds decision to keep rates at the current levels until the end of 2019.   Lending for equipment sank 24 percent in February compared to the prior year and 18 percent from January 2019.  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,  Citigroup Inc. (USD) 6.875% 3/5/2038 made analysts' 'Conviction Buy' lists. (See the chart for Citigroup Inc. below) Corey Mahoney cmahoney@advantagedata.com).

 

Key Gainers and Losers	Volume Leaders
+   BMW US Capital LLC 1.5% 4/11/2019 144A + 0.0%   Halfmoon Parent Inc. 4.125% 11/15/2025 144A + 0.4% -   UBS Group Funding AG (USD) VAR% PERP 144A -0.4%	BMW US Capital LLC   1.5% 4/11/2019 144A Dell Intl LLC   4% 7/15/2024 144A

Industry Returns Tracker

Industry Past Day Past Week Past Month Past Quarter YTD Past Year Agriculture, Forestry, Fishing -0.09% 0.49% 1.21% 3.58% 3.37% 4.60% Mining 0.12% 0.68% 1.28% 4.74% 4.37% 4.55% Construction 0.09% 0.65% 1.57% 3.58% 3.08% 4.81% Manufacturing 0.11% 0.57% 1.11% 3.40% 3.14% 3.86% Transportion, Communication, Electric/Gas 0.12% 0.79% 1.54% 4.24% 3.92% 5.04% Wholesale 0.15% 0.60% 1.48% 4.31% 4.32% 4.39% Retail 0.07% 0.60% 1.13% 3.55% 3.32% 4.22% Finance, Insurance, Real-Estate 0.06% 0.42% 1.01% 3.12% 2.71% 4.71% Services 0.11% 0.63% 1.21% 3.36% 3.05% 4.78% Public Administration -0.01% 0.22% 0.53% 1.40% 0.95% 3.56% Energy 0.14% 0.72% 1.43% 5.00% 4.75% 5.06%   Total returns (non-annualized) by rating, market weighted.

New Issues	New Issues [Continued]
1. Prime Security Services Borrower LLC (USD) 5.25% 4/15/2024 144A (03/21/2019): 750MM First Lien Notes, Price at Issuance 100, Yielding 5.25%. 2. Bank of Montreal (USD) FLT% 3/26/2022 (03/21/2019): 500MM Senior Unsecured Notes, Price at Issuance 100.

NEW ISSUANCE WATCH: on 3/21/19 participants welcome a $200MM new corporate-bond offering by
Toyota Credit Canada Inc.  The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 3/15/19, with a net inflow of $1.0B, year-to-date $8.2B 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) San Miguel Corp. (5Y Sen USD CR14)

Loans and Credit Market Overview

SYNDICATED LOANS HIGHLIGHTS:

Deals recently freed for secondary trading, notable secondary activity:

• Carbonite Inc, HotelBeds, Nine West Holdings Inc., TruGreen LP

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 14 bp (basis points), as of 03/22/19
• Net positive capital flows into high-yield ETFs & mutual funds

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