Morning Commentary: Junk hangs in as ‘reopening’ trades suffer brunt of volatility

By Paul A. Harris

Portland, Ore., Nov. 30 – On the final day of November, with the global capital markets taking the measure of the new Omicron coronavirus mutant, junk felt firm at mid-morning to a New York-based bond trader.

Reopening trades – bonds from issuers whose businesses have a high exposure to the economic impacts of the pandemic but are poised to breakout when the constraints of the pandemic lift – were taking the brunt of the volatility that took hold of stocks and commodities on Tuesday morning, the trader said.

Airline paper was a case in point.

There was considerable activity in the American Airlines, Inc./AAdvantage Loyalty IP Ltd. 5¾% senior secured notes due April 2029, which were down ½ point on the morning at 105 bid, 105¼ offered, the trader said.

Likewise, cruise lines, the fortunes of which hinge on the sustained resurgence of lower-risk international leisure travel, found themselves in the throes of Tuesday’s Covid-19-induced volatility.

The Royal Caribbean Cruises Ltd. 5½% senior notes due April 2028 were down close to a point at 98 bid, 98¼ offered in somewhat active trading.

Crude oil prices, which soared as the planet came back into motion in summer and early fall, went into a tumbling dive worthy of Icarus as November was coming to a close.

The barrel price of West Texas Intermediate crude for January 2022 delivery was $68.05 at mid-morning, down $1.90, or 2.72%, on the day, and down nearly 20% from an intraday high of $84.15 on Nov. 9.

Bonds placed on Nov. 18 by oil and gas drilling contractor Nabors Industries, Inc., the 7 3/8% senior priority guaranteed notes due May 2027 (B3/B-/B), were down a point on Tuesday at 99 bid.

The $700 million issue priced at par.

The primary market remained quiet on Tuesday, with market players expecting a quiet post-Thanksgiving week on the new issue bourse.

That expectation was fueled by a couple of the big dealers telegraphing expectations of no new high-yield offerings during the November-December crossover week, market sources say.

One morsel of new issue news came out of the euro-denominated market.

Italian paperboard producer Reno de Medici SpA set final talk on its €445 million offering five-year senior secured floating-rate notes (B2/B/BB-).

On the bright side, the deal is expected to price on Tuesday.

However, Reno de Medici, which had been scheduled to price last week but was pushed into this week by the global capital markets volatility, also picked up a few dents and dings along the way, with final spread talk coming at the wide end of the initial spread whisper, and price talk a buck cheap to the initial guidance.

Monday outflows

Actively managed high-yield funds, the asset managers, sustained $980 million of daily outflows on Monday, according to a market source.

However, high-yield ETFs saw solid or better cash inflows of $358 million on the day.

The combined funds are tracking $1.24 billion of net outflows for the week that will conclude with Wednesday's close, the market source said.

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