Three issuers clear busy junk calendar; secondary weak on inflation; Performance Food holds

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 13 – News volume remained strong and steady in both the European and U.S. high-yield new issue markets on Tuesday.

In the dollar-denominated market three issuers priced single-tranche deals for a combined face amount of $1.5 billion.

Meanwhile, volatility returned to the secondary space on Tuesday as concern over inflation again spooked investors.

The cash bond market was down about ¼ point with rate-sensitive names off as much as ½ point, a source said.

While a hotter-than-expected June inflation report did little to shake the market early in the session, a weak Treasury auction in the afternoon sparked a round of selling activity.

Bids-wanted-in-competition lists outnumbered offers-wanted-in-competition lists almost 3 to 1, a source said.

While the selling activity on Tuesday was orderly, all eyes will be on Federal Reserve Chair Jerome Powell’s testimony before Congress on Wednesday and Thursday to see if the market weakness was just a temporary blip or the start of a larger trend.

While the overall market was weak on Tuesday, Performance Food Group Co.’s 4¼% senior notes due 2029 (B2/B+) were holding up well and continued to trade on a 101-handle.

However, Masonite International Corp.’s recently priced 3½% senior notes due 2030 (Ba1/BB+) were weaker in active trading.

Primary

None of the three dollar-denominated deals to price on Tuesday were upsized.

All priced on the tight ends of talk.

First Student Bidco Inc. and First Transit Parent Inc. priced an $800 million issue of 4% eight-year senior secured notes at par.

Laredo Petroleum, Inc. priced a $400 million issue of 7¾% eight-year senior notes (B3/B) at par.

And in a drive-by ZoomInfo Technologies LLC priced a $300 million add-on to the 3 7/8% senior notes due Feb. 1, 2029 (B3/B) at 99.25.

All three deals were hanging in around their issue prices at Tuesday's close, a trader said.

Meantime the active new issue calendar continued to build (see related stories in this issue).

Selling pressure

Volatility returned to the secondary space on Tuesday after an extended period of sideways movement with the market at all-time tights.

“It was a little bit of a different day,” a source said.

The cash bond market was down about ¼ point with rate-sensitive names down as much as ½ point as inflation concerns sparked a run from risk assets.

June’s consumer price index jumped 0.9% versus expectations for an increase of 0.5%. It was up 5.4% year over year.

“It was a wild CPI report,” a source said. “We haven’t seen these kinds of numbers in 20 to 30 years.”

However, the market shrugged off the report early in the session.

It was a weak 30-year Treasury auction and a spiking 10-year Treasury that sparked selling activity in the afternoon.

The yield on the 10-year Treasury climbed to 1.423%, a significant move given the yield was 1.26% one week ago, a source said.

Bids-wanted-in-competition lists topped $3.8 billion compared to offers-wanted-in-competition lists of $1.4 billion.

Exchange-traded funds were the major sellers in the market, a source said.

All eyes will be on Federal Reserve Jerome Powell’s testimony before congress on Wednesday and Thursday to see his take on the latest inflation figures.

With the market at a virtual standstill near all-time tights for weeks, some sources have long expected a pullback.

The pullback is expected to come once the Federal Reserve dials back support and begins to tighten its monetary policy.

Whether Tuesday marked the start of a larger trend in the market or was just a temporary blip with no follow-through remains to be seen.

Performance Food trades well

While the overall market was weak on Tuesday, Performance Food’s 4¼% senior notes due 2029 (B2/B+) continued to trade well.

The 4¼% notes were marked at 101 bid, 101¼ offered heading into the market close, a source said.

The food distribution services company priced an upsized $1 billion, from $780 million, issue of the 4¼% notes at par on Monday.

The yield printed at the tight end of the 4¼% to 4½% yield talk.

The deal was heard to have played to $2 billion in demand.

Masonite weakens

Masonite’s 3½% senior notes due 2030 were weaker on Tuesday with lower-coupon, longer-duration notes again under pressure as inflation concerns returned to the market.

The 3½% notes were down about ½ point. They were marked at par ¼ bid, par ¾ offered after closing the previous session at par ¾ bid, par 7/8 offered.

Masonite priced a $375 million issue of the 3¼% notes at par last Friday.

$150 million Monday outflows

The dedicated high-yield bond funds sustained $150 million of net daily outflows on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $227 million of outflows on the day.

Actively managed high-yield funds were positive on Monday, posting $77 million of inflows on the day, the source said.

Indexes mixed

The KDP High Yield Daily index closed Tuesday unchanged at 70.34 with the yield also unchanged at 3.63%.

The index shaved off 1 point on Monday.

The ICE BofAML US High Yield index dropped 3.6 basis points with the year-to-date return now 4.103%. The index gained 11.9 bps on Monday.

The CDX High Yield 30 index dropped 19 bps to close Tuesday at 109.81. The index shaved off 5 bps on Monday.

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