Investment Grade Bond Research - September 3, 2019

U.S. MANUFACTURING CONTRACTED IN AUGUST falling below the pivotal reading of 50 indicating contraction within the manufacturing sector. “(The ISM data) was confirmation that manufacturing has been in a decline since reaching a peak a year ago,” Pavlik added. “It’s not a great sign, not the kind of sign you want to see in a slowing economy.” Weakening global economies and trade tensions are starting to show effects on the US economy. The 10-year note dipped 2.7 basis points. S&P -0.64%, DOW -1.02, NASDAQ -1.01%.

SECOND QUARTER GDP ROSE AT AN ANNUAL RATE 2 PERCENT reporting slower growth than the previous quarter as corporate profits rebound. “Whatever the numbers show for any individual quarter, we have to expect a weaker trend in corporate earnings growth in the next year.” ADI proprietary index data showed a net yield increment for high-grade versus high-yield bonds. High-grade edged out high-yield. Among high-grade bonds showing topmost price gains at appreciable volumes traded, McDonald's Corp. (USD) 3.625% 5/1/2043  made analysts' 'Conviction Buy' list. (See the chart below for McDonald's Corp. bonds below.) Corey Mahoney

 

Key Gainers and Losers	Volume Leaders
+   CVS Health Corp. 3.7% 3/9/2023 + 0.3%   HSBC USA Inc. 2.75% 8/7/2020 + 0.1% -   Comcast Corp. 4.7% 10/15/2048 -0.2%	Comcast Corp.   4.7% 10/15/2048 Credit Agricole London   2.75% 6/10/2020 Reg S

Industry Returns Tracker

Industry Past Day Past Week Past Month Past Quarter YTD Past Year Agriculture, Forestry, Fishing 0.32% 0.44% 1.68% 2.89% 10.21% 9.91% Mining -0.08% -0.12% 2.69% 5.36% 12.50% 10.94% Construction 0.00% 0.27% 2.94% 5.68% 11.49% 10.79% Manufacturing -0.01% 0.03% 3.09% 6.09% 11.11% 10.12% Transportion, Communication, Electric/Gas -0.02% 0.14% 4.15% 7.68% 14.98% 13.88% Wholesale 0.00% 0.12% 2.48% 5.05% 11.16% 10.42% Retail -0.04% -0.07% 3.62% 6.92% 12.57% 11.87% Finance, Insurance, Real-Estate 0.02% 0.04% 2.26% 4.31% 9.40% 9.52% Services 0.01% 0.03% 3.27% 5.78% 11.07% 10.89% Public Administration 0.08% -0.06% 1.44% 2.35% 4.82% 6.09% Energy -0.06% -0.11% 2.75% 5.45% 12.87% 11.09%   Total returns (non-annualized) by rating, market weighted.

New Issues	New Issues [Continued]
1. PPL Electric Utilities Corp. (USD) 3% 10/1/2049 (09/03/2019):400MM Secured Notes, Price at Issuance 98.321, Yielding 3.09%. 2. Deere & Co. (USD) 2.875% 9/7/2049 (09/03/2019): 500MM Senior Unsecured Notes, Price at Issuance 99.96, Yielding 2.88%.

NEW ISSUANCE WATCH: on 09/03/19 participants welcome a $500M new corporate-bond offering by
Deere & Co. The most recent data showed money flowed out of high-yield ETFs/mutual funds for the week ended 8/16/19, with a net outflow of $4.07 billion.

 

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:

• Electronic Arts Inc., AutoData, PaySimple Inc., Nike Inc., US Foods Inc., Duerre Group

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 was 15 bp (basis points), as of 09/03/19
• Net positive capital flows into high-yield ETFs & mutual funds

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