Secondary HY rally continues amid thin liquidity; Carnival tops par; Laredo pares losses

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 22 – The primary market remained shuttered on Wednesday, with market sources saying that 2021 high-yield issuance has now run its course.

With the primary market closed, liquidity continued to thin in the secondary space as market players prepared to close their books for the year.

While trading volume was light, the market extended gains from the previous session with the cash bond market up about ¼ point, sources said.

Reopening trade names remained active and continued to lead the rally.

Carnival Corp.’s 6% senior notes due 2029 continued their upward momentum with the notes not only erasing the previous week’s losses but posting gains on the month.

Laredo Petroleum, Inc. 7¾% senior notes due 2029 also pared their losses from the previous week on a strong day for energy credits.

Carnival sails higher

Carnival’s 6% senior notes due 2029 continued their upward momentum on Wednesday with the notes not only erasing their losses from the previous week but posting gains on the month.

The 6% notes were up about 1 point to close the day at 101.

The notes traded up to par the previous session after dropping as low as 96 the previous week on an Omicron-inspired sell-off in travel names.

The 6% notes have traded below par for the duration of December amid general weakness in the secondary space.

They were on a 99-handle prior to the sell-off the previous week.

Energy gains

Laredo Petroleum’s 7¾% senior notes due 2029 also pared their losses from the previous week’s sell-off with energy credits strong as crude oil futures rallied.

While volume was light, the 7¾% notes gained about 1 point to close the day at 95 5/8.

Wednesday was a strong day for energy credit as crude oil futures rallied following a larger-than-expected drop in crude oil inventories.

West Texas Intermediate crude oil futures settled at $73, an increase of $1.88 or 2.64%. Brent crude oil futures settled at $75.57, an increase of $1.59 or 2.15%.

Laredo’s 7¾% notes fell 2 points to 94 on Monday on a soft day for the secondary space.

The notes are among the worst performing new issues of the year.

Laredo priced a $400 million issue of the 7¾% notes at par in July.

Large ETF inflows continue

The high-yield ETFs saw $629 million of daily cash inflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

Those inflows follow Monday's $355 million inflow, last Friday's $263 million inflow and last Thursday’s $781 million inflow, as the junk ETFs are seeing large inflows heading into year-end, the source said.

Actively managed high-yield funds were negative on Tuesday, sustaining $79 million of outflows on the day, according to the market source.

Indexes

The KDP High Yield Daily index gained 9 points to close Wednesday at 65.62 with the yield now 4.01%.

The index gained 15 points on Tuesday after falling 11 points on Monday.

The CDX High Yield 30 index gained 23 basis points to close Wednesday at 108.98.

The index rose 40 bps on Tuesday after falling 12 bps on Monday.

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