Primary, secondary quiet for low-grade bonds; APX in focus; Ford active; Square gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 2 – It was a quiet end to the week with the primary market dormant during Friday’s abbreviated session.

While quiet on Friday, the primary market closed out the first half of 2021 with a record amount of new issuance.

Meanwhile, there was little activity in the secondary space.

“I think the market already closed,” a source said, shortly before the end to the abbreviated session.

The activity that did occur centered on new paper.

APX Group, Inc.’s 5¾% senior notes due 2029 (Caa1/CCC) were the most actively traded issue in the secondary space with the notes continuing to put in a strong performance.

Ford Motor Credit Co. LLC’s 5.113% senior notes due 2029 also saw some activity with the notes coming in after making solid gains over the past week.

While volume in the name was light, Square Inc.’s recently priced 3½% senior notes due 2031 were the major gainers of Friday’s session with buyers seeking out the notes.

Breaking records

With the record-setting first half of 2021 now squarely in the rearview mirror, the abbreviated pre-Independence Day Friday session passed quietly, as forecast.

Numerous market participants, by using vacation time or other means at hand, managed to extend the holiday weekend by taking off Friday, in addition to Saturday, Sunday and Monday.

The numbers squarely indicate that the market earned the respite.

The first half of 2021 put up a staggering $300 billion of junk-rated, dollar-denominated issuance, $88.4 billion over the previous record of $211.6 billion, set in 2020, according to Prospect News data.

Only four of the past 11 entire years have topped the $300 billion total of issuance: 2020, 2014, 2013 and 2012. And only one of those, 2020, topped the $400 billion mark ($435.1 billion)

Average first-half issuance, going back to and including 2010, is $163 billion.

The first half of 2021 topped that average by an amazing 84%!

APX in focus

Vivint Smart Home Inc. subsidiary APX Group’s 5¾% senior notes due 2029 dominated activity on an otherwise lethargic day in the secondary space.

The 5¾% notes maintained the large premium gained after breaking for trade the previous session.

They continued to change hands in the par ¾ to 101¼ context with the final prints between 101 to 101¼, a source said.

There was more than $32 million in reported volume.

APX priced a downsized $800 million, from $900 million, issue of the 5¾% notes at par on Thursday.

The yield printed at the tight end of the 5¾% to 6% yield talk.

The deal was heard to be at least 3x oversubscribed.

Ford active

Ford Motor Credit’s 5.113% senior notes due 2029 saw some action on Friday with the notes trading down slightly after posting solid gains over the past week.

The notes were down about ¼ point on Friday to change hands in the 112 to 112¼ context, according to a market source.

There was about $20 million in reported volume.

The 5.113% notes have gained about 1 point over the past week.

Ford reported disappointing June and second-quarter sales figures on Friday.

While Ford reported a 9.6% year-over-year sales figure increase for the second quarter, it fell short of analyst expectations of sales growth of 10% to 20%.

The automaker also reported that sales for June declined 26.9% and announced further production cuts in July due to the global chip shortage.

While Ford reported disappointing sales figures, it also reported that it had received 100,000 reservations for its electric F-150 pickup truck since May.

Square gains

While volume was thin, Square’s 3½% senior notes due 2031 (Ba2/BB/BB) were among the major gainers of Friday’s session.

The notes rose to a 102-handle. They were changing hands between 102½ to 102¾ in the activity.

The majority of activity was between dealers who may have been acting on behalf of ETFs, a source said.

However, an account bought the notes for 102¾.

The 3¼% notes closed out the previous session at 101 3/8.

Investors were most likely looking at the fintech company’s growth prospects and wanted to increase their position in the company, a source said.

Square has a market cap of $109.78 billion. “That’s a large equity cushion,” a source said. “It’s going to trade tight for a BB credit.”

Analysts are also expecting strong growth from the company.

Estimates are for Square to report EBITDA of $879 million by year end and is expected to grow to EBITDA of $1.2 billion in the coming year.

$406 million Thursday inflows

The dedicated high-yield bond funds had $406 million of net daily inflows on Thursday, according to a market source.

High-yield ETFs saw $401 million of inflows on the day.

Actively managed high-yield funds saw $5 million of inflows on Thursday, the source said.

News of Thursday's daily flows follows a Thursday report that the combined funds had $893 million of net inflows for the week to the Wednesday, June 30 close, according to the Refinitiv Lipper Fund Flow Report Newsline.

It was the largest weekly inflow to the high-yield funds since the first week of April, the market source said.

The actively managed high-yield funds actually ended the most recent week well into the red, as the high yield ETFs saw $1.6 billion of inflows during the period.

Year-to-date the combined funds continue to be deeply submerged in a vat of red ink: negative-$13.8 billion for 2021 to Thursday's close, according to the market source.

Indexes gain

Indexes continued their upward momentum on Friday.

The KDP High Yield Daily index rose 4 points to close Friday at 70.25 with the yield 3.66%.

The index gained 6 points on Thursday, 4 points on Wednesday, 5 points on Tuesday and 4 points on Monday.

The index posted a cumulative gain of 23 points on the week.

The CDX High Yield 30 index rose 13 bps to close Friday at 110.37.

The index gained 4 bps on Thursday, was flat on Wednesday and fell 3 bps on Tuesday and 17 bps on Monday.

The index posted a cumulative loss of 3 bps on the week.

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