THE WALL STREET JOURNAL. ***** Wednesday, August 21, 2019 |B13
cent revenue growth will con-
tinue, holding down debt
ratios.
Bonds backed by Sirius XM
Holdings Inc., the world’s larg-
est satellite-radio company,
have also performed well.
The company’s 5.5% bonds
due in 2029, which are rated
BB by S&P, recently traded at
108.15 cents on the dollar, up
from 104.83 cents at the end ofShares of Madison Square
Garden Co., which owns the New
York Knicks basketball team and
New York Rangers hockey team,
fell 8.9% Tuesday, their biggest
single-day decline ever.
The sports-and-entertainment
company on Tuesday reported
fourth-quarter earnings for the
2019 fiscal year that showed a
deep operating loss and growing
expenses. It logged an operating
loss of $79.9 million for its fourth
quarter, compared with a year-
earlier loss of $44.2 million. Forthe entire fiscal year, it faced in-
creased expenses.
MSG’s expenses could stay
volatile, since the company is un-
dergoing change.
The company oversees famous
venues including New York’s Mad-
ison Square Garden, Radio City
Music Hall and the Beacon The-
atre, and owns sports franchises
including the Knicks and Rangers.
Hospitality group TAO Group,
which oversees restaurants and
clubs such as Tao, Marquee and
Vandal, is also part of MSG’sumbrella.
MSG is spinning off its sports
business from its media sector
and launching MSG Sphere, an
entertainment venue being built
in Nevada.
The company said in its earn-
ings report that construction
costs for the new venue would
be “dynamic.”
It also put a price tag on the
Sphere, stating in its earnings re-
lease that it carries a preliminary
cost estimate of $1.2 billion.
“While it is always difficult toprovide a definitive construction
cost estimate for large-scale con-
struction projects, it is particularly
challenging for one as unique as
MSG Sphere,” the company’s
earnings release stated.
Though the price/earnings ratio
for the next 12 months, one valu-
ation measure, has fallen in recent
quarters, according to FactSet
data, analysts covering the stock
appear optimistic it will bounce. At
least five out of six of them have
a buy rating on the shares.
—Gunjan BanerjiU.S. government-bond
prices rose Tuesday after It-
aly’s coalition government dis-
solved, adding to the array of
risks that are facing global in-
vestors.
The yield on the benchmark
10-year Treasury note fell for
the first time in
three trading ses-
sions, settling at
1.557% from
1.603% Monday.
Yields, which fall when
bond prices rise, declined af-
ter Deputy Prime Minister
Matteo Salvini called for snap
elections, triggering the resig-
nation of Prime Minister
Giuseppe Conte.
Uncertainty about Italy’s
government and its difficulty
in passing a budget have been
a source of continuing diffi-
culty within the European
Union, which also is in the
middle of Brexit negotiations
with U.K. officials.
Government-bond yields
around the world, including in
Germany, Japan and the U.K.,
also fell.
The yield on Italian 10-year
government notes declined
about 0.2 percentage point to
1.342%, the lowest since 2016.
Germany is preparing to sell
30-year government debt at a
negative yield Wednesday af-
ter selling negative-yielding
10-year bunds in June.
Italian officials in the coali-
tion government led by
Messrs. Conte and Salvini—
both antiestablishment fig-
ures—had sought EU permis-
sion to run larger budget
deficits than typically allowed
by EU rules.
Mr. Conte could attempt to
form a new coalition govern-
ment with the more established
Democratic Party, though it is
unclear how that could affect
Italy’s spending plans.
The economy in Europe also
is coping with a second-quar-
ter economic contraction in
Germany, where exports to
China fell.
“There’s a lot of fear, but
it’s mostly surrounding global
economic growth,” said Mark
Heppenstall, chief investment
officer at Penn Mutual Asset
Management.
For the moment, the U.S.
appears isolated from those
troubles, though they could
spill over, adding to the decel-
eration there, he said.
The dollar declined 0.1%
against the euro, and both cur-
rencies fell against the British
pound as investors are watch-
ing attempts by Prime Minis-
ter Boris Johnson to find ways
to extend Brexit talks with the
EU.
The WSJ Dollar Index,
which measures the U.S. cur-
rency against a basket of 16
others, recently slipped 0.2%
to 91.22, still near a multiyear
high.
BYDANIELKRUGER
Treasury
Prices
Climb on
Italian
Turmoil
CREDIT
MARKETS
about the economy has in-
creased the incentive for in-
vestors to favor the bonds of
companies that are better po-
sitioned to survive a down-
turn, said John Lloyd, co-head
of global credit research at
Janus Henderson.
“People would rather be
safe than sorry,” he said.
“They’re acting cautious.”
Among debt investors’ pre-
ferred companies in recent
weeks has been Charter Com-
munications Inc., the second-
largest U.S. distributor of cable
television programming. Char-
ter’s 5.375% notes due in 2029,
which are rated BB by S&P
Global Ratings and B1 by
Moody’s, recently traded at
106.25 cents on the dollar, up
from around 103.75 cents at
the end of last month, accord-
ing to MarketAxess.
That increase in price
pushed the yield on the bonds
down to around 4.4% from
4.8%.
Charter’s appeal to inves-
tors stems from its growing
subscription revenue customer
base for a product—television
and internet access—for which
demand tends to be less cycli-
cal. Analysts forecast that re-last month, according to Mar-
ketAxess.
Sirius is attractive because
it has stable cash flow and is
insulated from global growth
and trade concerns, said Chris
Kocinski, a bond portfolio
manager at Neuberger Berman,
who has added the debt in re-
cent months. Sirius bonds are
safer than energy and health-
care companies because of the
cash flow, he said.
“Energy issuers are facing
idiosyncratic as well as macro
concerns regarding global
growth,” while health-care
companies have risks related
to changing reimbursement
rates and the sector’s promi-
nence as an election issue, Mr.
Kocinski said.
Some beaten-up triple-C
bonds, meanwhile, have be-
come even more beaten up this
month, thanks to investors’
broad aversion to risk as well
as company-specific problems.
Secured bonds issued by
Houston-based oil and gas pro-
ducer EP Energy Corp. ,forex-
ample, have fallen to 48 cents
on the dollar from roughly 66
cents after the company said it
would defer interest payments
on the notes, according toMarketAxess.
Pacific Drilling SA bonds
have also fallen to a recent
price of 90 cents on the dollar,
down from 97.68 cents at the
start of the month, as the com-
pany reported a loss of $73.6
million for the second quarter.
Investors also are avoiding
bonds sold by retail companies
that were already facing chal-
lenges from internet retailers,
including Amazon.com Inc.,
when prospects for future eco-
nomic growth appeared more
assured. Many retailers would
face significant threats from a
broad slowdown in economic
growth as consumers cut back
or delay purchases in an un-
certain climate, investors said.
The U.S. government-bond
rally is a sign that “the global
economic outlook has become
considerably gloomier,” said
Matthew Eagan, a bond fund
manager at Loomis, Sayles &
Co. In recent months, Loomis
Sayles has been adding Trea-
surys and reducing holdings in
riskier bonds, Mr. Eagan said.
As corporate earnings start
to decline and economic data
starts to weaken, “downgrades
and defaults usually follow,” he
said.Debt investors are shying
away from junk bonds with
lower credit ratings, as con-
cerns about the economic out-
look ripple through financial
markets.
The amount of extra yield,
or spread, that investors de-
mand to hold triple-C rated
bonds—among the lowest-
rated on the scale—has in-
creased to around 8 percent-
age points over higher-rated
double-B bonds, according to
ICE BofAML data. That is the
widest since November 2016.
For companies with invest-
ment-grade bond ratings, sales
of new debt have continued
apace throughout the sharp
summer rally in Treasury
prices, a sign that fears of an
imminent recession are lim-
ited.
But issuance of high-yield
debt has begun to slow, ana-
lysts said, in what could be a
harbinger of additional pain
for a sector widely perceived
to be in constant need of fi-
nancing and vulnerable to a
downturn.
Heightened uncertainty
BYDANIELKRUGER
ANDSAMGOLDFARB
Traders Turn Against Lower-Rated Junk Bonds
Theyieldpremiumthat
investorsdemandtohold
CCC-ratedbondsover
debtratedBBSource: Federal Reserve Bank of St. Louis16468101214percentage points2015 ’16 ’17 ’18 ’19officer at Arbuthnot Latham,
adding that the market is likely
in “a sideways summer of trad-
ing activity.”
Financial, material and con-
sumer-staple stocks in the S&P
500 all fell more than 1%, re-
versing the gains those sectors
notched a day earlier. Shares of
banks were hit hard following
the latest slide in bond yields,
which usually make it harder for
banks to make money on loans.
Energy stocks also stumbledalongside a decline in oil prices,
deepening the industry’s slide
this month to more than 8%.
Consumer-discretionary
stocks reversed an earlier gain
late in the session, sapping the
stock market of its one pillar of
support. The sector ended
down nearly 0.1% despite a gain
of $9.14, or 4.4%, to $217.09
among shares of Home Depot.
The home-improvement chain
reported earnings that topped
expectations, even as it cut itsMARKETS
volatility fairly high going into
the third quarter,” said Tom
Hainlin, global investment
strategist at U.S. Bank’s Ascent
Private Wealth Management
group.
The blue-chip index dropped
173.35 points, or 0.7%, to
25962.44, closing near its low-
est point of the session. The
S&P 500 fell 23.14 points, or
0.8%, to 2900.51. The losses
snapped a three-session run of
gains that followed one of the
stock market’s harshest bouts
of selling last Wednesday.
The Nasdaq Composite slid
54.25 points, or 0.7%, to
7948.56, its first loss in three
trading sessions.
The selloff wasn’t unusual,
some investors said, consider-
ing the Dow and S&P 500 rose
2.6% and 2.9%, respectively,
over the previous three trading
sessions.
That recovery had put both
indexes back within 5% of their
July records, and Tuesday’s
pullback widened that gap
again. The stock market will
likely struggle to break past
that watermark unless the U.S.
makes progress on a resolving
its trade fight with China, ana-
lysts said.
There is fatigue, said Greg-
ory Perdon, co-chief investmentsales forecast and warned
about the potential effects of
tariffs on growth.
Investors, meanwhile, moved
money into other asset classes,
especially the havens, which
are considered more durable
stores of value during economic
stress.
Investors sought the safety
of Treasurys, pushing prices
higher for the first time in
three trading sessions. That
sent the yield on the 10-year
Treasury note down to 1.557%
from 1.603% a day earlier.
Investors also bought gold,
sending the metal 0.3% higher
to $1,504.60 a troy ounce and
back toward its highest levels
of the year.
Investors expect the volatil-
ity to continue, with several
predicting a seesawing market
over the next several weeks
that leaves major indexes stuck
in a narrow trading range.
In Europe, the Stoxx 600 fell
0.7%. At midday Wednesday in
Tokyo, the Nikkei 225 was
down 0.4%. Also early in the
day, Hong Kong’s Hang Seng In-
dex and Shanghai Composite
were down less than 0.1%,
South Korea’s Kospi was up
0.2% and Australia’s S&P ASX
200 was down 1.1%. The dollar
wasupto¥106.47.Major U.S. stock indexes fell
and investors resumed their
buying of less risky assets, put-
ting the market’s recent recov-
ery temporarily on hold.
Shares of companies from
banks to materials firms to
consumer sta-
ples retreated,
as investors re-
mained on edge
over the U.S. and China’s trade
conflict and how the Federal
Reserve plans to proceed with
monetary policy.
The Dow Jones Industrial
Average and S&P 500, under
pressure most of the day, accel-
erated their declines over the
last 10 minutes of the session.
No major catalysts precipi-
tated the pullback, and some
analysts described the trading
session as a pause while inves-
tors awaited further develop-
ments on trade and interest
rates. At the same time, inves-
tors bought less risky assets,
including bonds—pushing
yields even lower—and other
havens, such as gold.
“We’re in a quiet period
watching monetary and trade
policy as key drivers of the
market and should help keepBYMICHAELWURSTHORN
ANDANNAISAACStocks Fall as Investors Cut Risk
TakingaBreather
Tuesday’slossessnappedathree-dayrunofgainsthathad
followedthestockmarket’spunishingsellofflastWednesday.Five-dayindexperformanceSource: FactSet1–4–3–2–10%S&P500DowJonesIndustrialAverageAug. 14 15 16 19 20TUESDAY’S
MARKETSU.S. oil prices are trading at
the smallest discount to global
prices in more than a year—a
reversal that is crimping do-
mestic exports and could lead
to a buildup of crude.
Two new pipelines have
started transporting oil from
the prolific
Permian Ba-
sin of West
Texas and New Mexico to the
Gulf of Mexico. That has eased
a bottleneck, which has
pushed the price of West
Texas Intermediate—the U.S.
price benchmark—closer to the
global price of Brent crude oil.
The difference between WTI
and Brent fell to $3.53 a barrel
Monday, its lowest level since
July 2018, according to Dow
Jones Market Data.
The gap was at $3.69 Tues-
day as U.S. crude closed up
0.2% at $56.34 a barrel and
Brent advanced 0.5% to $60.03.
Although the new pipelines
have supported domestic oil
prices temporarily, they have
already started limiting U.S.
exports as the WTI discount
shrinks and the two prices
converge.
The drop in exports has
contributed to a buildup in do-
mestic inventories, an alarm-
ing trend to bullish oil inves-
tors that traders say could
exacerbate fears of excess sup-
ply if it continues.
“Nobody really wants the
barrels when they’re $3
cheaper than Brent,” said Bob
Yawger, director of the futures
division at Mizuho Securities
USA. “It could get ugly long-
term.”
Analysts have in recent
weeks already been worried
that softening demand and
steady production will lead to
a glut of crude. That has
caused U.S. prices to trade 15%
below their April peak and
Brent to be roughly 19% below
its 2019 high.
In one sign that the narrow-
ing spread could hurt domestic
prices, U.S. crude exports aver-
aged about 2.4 million barrels
a day during the three-week
period ended Aug. 9, down
from an average above 3 mil-
lion barrels between the start
of May and mid-July, Energy
Information Administration
figures show.
With exports dropping and
refiners taking in less crude,
domestic stockpiles rose unex-
pectedly in consecutive weeks
through Aug. 9. Inventories typ-
ically drop in the summer amid
steady fuel demand during peak
travel season. New figures will
be released Wednesday.
Inventories are expected to
have fallen 1.5 million barrels
in the week ended Aug. 16, per
the average target of 12 ana-
lysts and traders surveyed by
The Wall Street Journal.
—Dan Molinski
contributed to this article.BYAMRITHRAMKUMARNarrowing
U.S. Crude
Discount
Stirs Fear
COMMODITIES
Market Slam Dunks MSG’s Shares After Another Loss—Off the Court
ERICK W. RASCO/SPORTS ILLUSTRATED/GETTY IMAGES