Energy, travel names lead junk bond trading losses; Weatherford, Nabors, Carnival down

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 30 – With no new issues pricing on the last day of November, selling pressure returned to the high-yield secondary space following hawkish comments from Federal Reserve chair Jerome H. Powell.

Powell announced on Tuesday that bond tapering would come sooner than previously anticipated and the word transitory would no longer be used to describe inflation.

The comments sparked a sell-off in risk assets with equity indexes each dropping almost 2% and the cash bond market down about ½ point.

Travel and energy, the names that led Monday’s rebound from Black Friday, were among the hardest hit in Tuesday’s sell-off.

Carnival Corp.’s senior notes gave back some of their gains from the previous session.

Energy names were particularly hard hit as crude oil futures plummeted more than 5%.

Weatherford International Ltd.’s 8 5/8% senior notes due 2030 (B3/CCC+) sank below par for the first time since pricing.

Nabors Industries, Inc.’s junk bonds were under pressure with the drilling contractors’ recently priced 7 3/8% senior priority guaranteed notes due 2027 (B3/B-/B) hitting their lowest level since pricing.

New bond horizon

The dollar-denominated primary market remained dormant on Tuesday, with risk aversion related to pandemic news, inflation scares, falling oil prices and Treasury volatility taking hold, sources say.

New issue activity could pick up somewhat later this week or next week, according to a syndicate banker.

However the run-up to 2022 in the primary market is unlikely to seem busy by anyone's measure, the banker remarked.

Although there are always surprises, it's possible that the high-yield sector will generate as little as $10 billion of new issuance between now and the Christmas shutdown, according to this official, who added that 2021 year-end issuance could come in well short of $10 billion.

A news nugget did emanate from the euro-denominated high-yield new issue market on Tuesday.

In a deal held over in the market over the weekend because of the volatility that began to take hold in the latter part of last week, Italian paperboard manufacturer Reno de Medici SpA priced a €445 million issue of five-year senior secured floating-rate notes (B2/B/BB-) with a 525 bps spread to Euribor at 98.5.

The spread and issue price came on top of talk.

However market conditions caused Reno de Medici to pay up, as the spread came at the wide end of initial guidance, while the issue price came a dollar cheap to initial price guidance (see related story in this issue).

Carnival sinks again

Carnival’s senior notes were again trading down as selling pressure returned to the secondary space.

The cruise line operator’s 6% senior notes due 2029 (B3/BB-/B+) were again the top-traded name in the secondary space with the notes giving back some of their gains from the previous session.

The 6% notes were down about 5/8 point. They were changing hands in the 97 3/8 to 97 5/8 context heading into the market close, according to a market source.

There was $33 million in reported volume.

The 6% notes rose almost 2 points during Monday’s rebound.

While down on Tuesday, the notes remained above the lows reached during the sell-off on Black Friday when they tumbled to a 96-handle.

Carnival’s 5¾% senior notes due 2027 (B2/B) were also giving back some of their gains from the previous session.

The 5¾% notes were off about ¾ point and stood poised to close the day at 97¾. There was about $17 million in reported volume.

Energy’s nosedive

After leading Monday’s rebound, energy names were dragging down the overall market on Tuesday as crude oil futures plummeted.

Weatherford’s 8 5/8% senior notes due 2030 and Nabors’ 7 3/8% senior priority guaranteed notes due 2027 hit their lowest levels on Tuesday since pricing.

Weatherford’s 8 5/8% senior notes due 2030 sank more than 2 points.

They were changing hands in the 98 to 98½ context heading into the market close, a source said.

There was about $10 million in reported volume.

The notes were changing hands in the par ¼ to par ½ context on Monday.

They were on a 102-handle heading into last Friday’s session.

Weatherford priced a $1.5 billion issue of the 8 5/8% notes at par on Friday.

Nabors’ 7 3/8% senior priority guaranteed notes due 2027 fell to their lowest level since the notes priced.

The 7 3/8% notes were down 1¾ points to change hands in the 97 7/8 to 98¼ context heading into the market close, according to a market source.

There was about $19 million in reported volume.

While volume was light, the oil and gas drilling contractor’s 7¼% senior notes due 2026 sank 2¾ points to 86.

Crude oil futures nosedived on Tuesday after staging a recovery during Monday’s session. WTI crude oil futures fell to settle at $66.18, a decrease of $3.77 or 5.39%.

Brent crude oil futures settled at $70.57, a decrease of $2.87 or 3.91%.

Concern over the omicron variant and uncertainty about OPEC oil production triggered the sell-off.

$980 million Monday outflows

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

Those outflows were broad-based, the source noted.

Meanwhile high-yield ETFs saw solid or better cash inflows of $358 million on Tuesday.

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

Of note, the dedicated bank loan funds sustained $144 million of net outflows on Tuesday, which was only their second negative daily cash flow in 46 weeks, according to the market source.

Indexes

The KDP High Yield Daily index shaved off 6 points to close Tuesday at 67.02 with the yield now 4.33%. The index gained 10 points on Monday.

The CDX High Yield 30 index fell 48 bps to close Tuesday at 107.64.

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