Investment Grade Bond Research - May 9, 2019

STOCKS DECLINED AGAIN ON THURSDAY as a week of uncertainty over U.S.-China trade relations continues. The world's two largest economies have yet to strike a trade deal, but proceedings have officially begun to increase tariffs on Chinese imports from 10% to 25%. In the midst, the Dow Jones dropped 139 points. 10-Year U.S. Treasury Notes fell 3 basis points. S&P -0.30%, Dow -0.54% , NASDAQ -0.41%.

IN THE CORPORATE BOND MARKET, IBM Corp. recently sold $20B worth of senior unsecured notesto fund the purchase of software company Red Hat Inc. This is the largest issuance of corporate debt this year, surpassing Bristol-Myers Squibb's $19B deal from just a day earlier. According to Mike Collins, a portfolio manager at PGIM Fixed Income, the demand for corporate debt indicates that "the fundamentals of the global economy look decent, especially the U.S. economy, and companies are being opportunistic and issueing while they can". IBM has pledged to keep Red Hat independently run after the acquistion. 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, Time Warner Inc. (USD) 7.7% 5/1/2032 made analysts' 'Conviction Buy' lists. (See the chart for  Time Warner Inc. (USD) 7.7% 5/1/2032 below.) Andrew Robartes (arobartes@advantagedata.com).

 

Key Gainers and Losers	Volume Leaders
+   Ford Motor Credit Co. 2.597% 11/4/2019 + 0.0%   AT&T Inc. 4.1% 2/15/2028 + 0.2% -   Oracle Corp. 4% 11/15/2047 -0.7%	GE Capital Intl. Funding Co.   4.418% 11/15/2035 Comcast Corp.   4.95% 10/15/2058

Industry Returns Tracker

Industry Past Day Past Week Past Month Past Quarter YTD Past Year Agriculture, Forestry, Fishing 0.52% 0.27% 0.83% 3.00% 5.34% 4.70% Mining -0.17% -0.25% 0.52% 2.87% 6.05% 6.39% Construction -0.07% 0.10% 0.96% 2.74% 4.56% 5.88% Manufacturing -0.12% -0.07% 0.67% 2.38% 4.66% 5.51% Transportion, Communication, Electric/Gas -0.20% -0.04% 0.98% 3.41% 5.92% 7.88% Wholesale -0.07% -0.05% 0.88% 2.74% 5.50% 6.03% Retail -0.15% -0.17% 0.54% 2.24% 4.62% 5.88% Finance, Insurance, Real-Estate -0.10% -0.02% 0.56% 2.14% 4.06% 5.81% Services -0.13% -0.06% 0.49% 2.11% 4.31% 6.34% Public Administration -0.02% 0.12% 0.44% 1.14% 1.61% 3.96% Energy -0.18% -0.25% 0.55% 3.01% 6.30% 8.27%   Total returns (non-annualized) by rating, market weighted.

New Issues	New Issues [Continued]
1. American Honda Finance Corp. (USD) FLT% 5/13/2020 (05/08/2019): 300MM Senior Unsecured Notes, Price at Issuance 100. 2. Bristol-Myers Squibb Co. (USD) 3.4% 7/26/2029 144A (05/08/2019): 4000MM Senior Unsecured Notes, Price at Issuance 99.175, Yielding 3.5%.

NEW ISSUANCE WATCH: on 5/09/19 participants welcome a $400MM new corporate-bond offering by USAA Capital Corp. The most recent data showed money flowed into high-yield ETFs/mutual funds for the week ended 5/03/19, with a net inflow of $21.3MM, year-to-date $13.9B flowed into high-yield.

 

Top Widening Credit Default Swaps (CDS)	Top Narrowing Credit Default Swaps (CDS)
Hovnanian Enterprises Inc. (5Y Sen USD MR14)	SuperValu Inc. (5Y Sen USD XR14) Atmos Energy Corp. (5Y Sen USD MR14)

Loans and Credit Market Overview

SYNDICATED LOANS HIGHLIGHTS:

Deals recently freed for secondary trading, notable secondary activity:

• Rikshem AB, Broadcom LTD, Verifone Inc., Twin River Management Group Inc.

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 12 bp (basis points), as of 05/09/19
• Net positive capital flows into high-yield ETFs & mutual funds

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