Morning Commentary: Junk flat as Treasuries steady; recent issues keep modest premiums

By Paul A. Harris

Portland, Ore., Nov. 12 – Cash bonds opened the post-holiday Friday session unchanged to possibly a touch lower, according to a trader in New York.

The iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 7 cents, or 0.07%, at $86.89.

Rate scares that have lately been stampeding yields on government bonds appeared to have eased on Friday, according to a market source, who marked the 10-year Treasury bond at slightly above 1.55%, not quite 1 basis point lower on the day.

However, inflation worries are in the numbers, a bond trader said. The 10-year breakeven rate – the difference between the yield on 10-year Treasuries and that of 10-year Treasury Inflation Protected Securities (TIPS) – was 2.74%, the highest since 2006.

Some recent issues were trading at modest premiums early Friday after lagging on the break.

One case in point was the past week’s megadeal, a $5.25 billion two-part placement of secured bullet paper (Ba3/B+) from DISH Network Corp. and DISH DBS Corp.

The DISH 5¼% notes due 2026 were par bid, par 1/8 offered. Those notes broke below par on Wednesday when they were seen at 99 5/8 bid, 99 7/8 offered.

The DISH 5¾% notes due 2028 were par bid, par 7/8 offered on Friday. They broke to 99 3/8 bid, 99 7/8 offered on Wednesday.

Notes in both tranches were priced at par.

The overall deal size grew two times, to $5.25 billion from $5 billion, after having increased earlier from $4 billion.

Books were heard to contain $9.3 billion of orders across both tranches.

Another Wednesday deal that initially lagged in the secondary, the PROG Holdings, Inc. 6% senior notes to November 2029 (B1/BB-), were par 1/8 bid, par 5/8 offered on Friday.

Those notes had been seen, post-break, in a context of 99½ bid, par ½ offered.

The $600 million issue priced at par, with investors heard to have received full allocations.

Meanwhile dollar-denominated unsecured notes (Ba2/BB) priced Tuesday by Graphic Packaging Holding Co., the 3¾% senior notes due February 2030, a bullet, were par ¼ bid, par ¾ offered on Friday morning.

The $400 million issue priced at par in a deal that also featured a €290 million tranche of 2 5/8% unsecured bullet notes due February 2029.

Following a $14 billion burst of issuance in the Monday through Wednesday period ahead of Thursday's Veterans Day holiday, the new issue market was quiet and the active forward calendar clear in the early going on Friday, sources said.

Fund flows

The cash flows of the two cohorts of dedicated high-yield bond funds over the previous two sessions – including Wednesday, as well as the Thursday holiday session – were as follows, according to a market source.

High-yield ETFs sustained $299 million of outflows on Wednesday and were absolutely flat on Thursday.

Actively managed high-yield funds saw $35 million of inflows on Wednesday and $45 million of outflows on Thursday.

Those daily fund flow numbers follow a report that the combined funds saw $2.58 billion of net inflows in the week to Wednesday's close, a period that encompassed the $1.47 billion of daily inflows to the high-yield ETFs reported on Friday, Nov. 5, which was their largest daily inflow since March 10, 2021.

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