Morning Commentary: Omicron sends market players home; junk eases as liquidity thins

By Paul A. Harris

Portland, Ore., Dec. 17 – The Omicron variant of coronavirus sent a sizable swath of debt capital markets participants back home to work remotely, sources said on Friday.

A trader working from home, preparing to get tested, said that given conditions with the virus, and the customary reduction in activity a week before Christmas, liquidity appears to have pretty much dried up.

With equities in the throes of volatility on Friday morning, junk was down ¼ point to ½ point.

At mid-morning the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.2%, or 17 cents, at $86.28.

Unsecured bonds of Talen Energy remained volatile in the wake of the company closing on a new upsized $848 million first-lien revolver (from $788 million) from a lender group led by GoldenTree Asset Management LP and Silver Point Finance, LLC, collateralized in part by Talen's stake in the Susquehanna Steam Electric Station, which sources characterize as the company’s chief asset.

With the new revolver in place, unsecured lenders will have little if any access to that asset in a recovery situation, traders explained.

Holders of the unsecured paper have been “primed,” a trader asserted.

The Talen Energy Supply, LLC 10½% senior guaranteed notes due January 2026, which traded as low as 45 in Wednesday intraday trading, were 47½ bid, 49½ offered on Friday morning, although there appeared to be modest amounts of both buying and selling interest well wide of those marks, a trader said.

That paper had been trading in the mid-50s on Dec. 10, a trader said.

The market continues to eye these bonds, with some holders seeming poised to hit just about any bid, while others gravitate toward a view that the paper has gotten too cheap, the trader said.

ETFs see inflows

High-yield ETFs saw large daily cash inflows of $781 million on Thursday, according to a market source.

Actively managed high-yield funds were negative on the day, sustaining $28 million of outflows on Thursday.

News of Thursday’s daily flows trails a Thursday report that the combined funds sustained $200 million of net outflows in the week to the Dec. 15 close.

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