NorthAmericaCreditResearch02May2019CreditMarketOutlook&StrategyUSHighGradeStrategy&CDSResearchUSHighGradeStrategy&CreditDerivativesResearchEricBeinsteinAC(1-212)834-4211eric.beinstein@jpmorgan.comPaulGlezer(1-212)270-8185paul.x.glezer@jpmorgan.comPavanDTalreja(1-212)834-2051pavan.talreja@jpmchase.comSheilaXie(1-212)834-3036sheila.xie@jpmorgan.comJ.P.MorganSecuritiesLLCSeepage32foranalystcertificationandimportantdisclosures.J.P.Morgandoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.www.jpmorganmarkets.comHighGradeStrategyHighGradebondspreadsrallied12bpinthefirsthalfofAprilto139bpandremainedthereforthepasttwoweeks.LastmonthwaspositivenewsonUSgrowthasGDPcameinat3.2%comparedwithmuchweakerestimatesearlierinthequarter.Corporateearningsalsohavecomeinbetterthanexpected(thoughnotstrong)withEPSgrowthof0.5%y/yonthequartersofar,comparedwith-2.0%expectedatthestartofearningsseasoninearlyApril.Supplywasinlinewithexpectationsat$92bnlastmonthandisdown6%y/y.Thishasbroughtnetsupplydownby18%y/y.TheslowdowninsupplyhasbeendrivenbyFinancials,andtheyhaveoutperformedFinancialspartlyonthebackofthis.ThecostofFXhedgesforEuroandYen-basedinvestorshasrisenrecently,butnotforTaiwanbasedinvestors.BasedonTRACEdataoverseasdemandforUSDcreditisrunningnearthe2018level,followingastrongJan-Feb.The20s30sspreadcurvesuggeststhat20yrbondsremaincheap–despitethemessagegivenbyanalyzing20s30sbenchmarkcurves.CreditDerivativesCDXHYhasoutperformedmostcreditandequityindicessinceitsrolllastmonth.CDX.HYindexistradingrichversusHYbonds,iTraxxCrossoverandtheRussell2000.However,CDX.IGandCDX.HYaretradinginline.TradingactivityhaspickedupsignificantlyintheCDX.IG3yand10yindices.CDX.IG10yindexisoneofthethreemosttradedlinearinstrumentsinHGcreditafterCDX.IG5yindexandLQD.TheCDX.IGS31seniormezzaninetranchehasunderperforme...
