Morning Commentary: Junk opens week with firm tone; funds see solid Friday inflow

By Paul A. Harris

Portland, Ore., Aug. 30 – The characteristic low market liquidity of late summer notwithstanding, high yield was marching into late August on solid footing Monday morning, a trader said.

With cash bonds firm at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 12 cents, or 0.14%, at $88.08.

Reports that Hurricane Ida shut down as much as 95% of oil production in the Gulf of Mexico failed to generate any reflexive buying or selling in the high-yield energy sector, as investors continue to assess the situation, the trader said.

The barrel price of West Texas Intermediate crude oil for October 2021 delivery was essentially flat at $68.77 at mid-morning, up 3 cents or 0.04% on the day.

Southwestern Energy Co.’s 5 3/8% senior notes due March 2030 (Ba3/BB-/BB-) were 103 bid, 104 offered, up 5/8 of a point since the open.

The oversubscribed $1.2 billion issue priced at par on Aug. 16.

Neither did high-yield investors appear to be taking flight from pandemic risk, though news headlines continue to be dire.

SeaWorld Entertainment, Inc.’s 5¼% senior notes due August 2029 (Caa1/B-) were unchanged at par bid, par ¼ offered on Monday morning.

The Orlando, Fla.-based theme park and entertainment company printed $725 million of the notes and sold them at par on Aug. 13.

One of the market's freshest issues, Sylvamo Corp.’s 7% senior notes due September 2029 (B1/BB), continued a notable climb that got underway early last week, trading Monday at 104.2, the trader said.

They were 103 bid, 103½ offered on Friday, up from 102 bid, 103 offered earlier last week.

A week ago, they were par ¼ bid.

The downsized $450 million deal (from $500 million) priced at par on Aug. 20.

The deal was heard to struggle, with the issuer – the commercial papers business being spun off from International Paper Co. – forced to cough up in excess of 100 basis points more than initial price talk, as well as covenant concessions.

Friday inflows

The dedicated high-yield bond funds saw a solid-or-better $770 million of daily net inflows on Friday, according to a market source.

High-yield ETFs saw $490 million of inflows on the day.

Actively managed high-yield funds saw $280 million of inflows on Friday, the source said.

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