Junk secondary lower as investors flee risk ahead of long weekend; CSC down; Mednax active

By Abigail W. Adams and Paul A. Harris

Portland, Me., Feb. 18 – The domestic high-yield primary market remained shuttered and the secondary space remained under pressure on Friday as investors fled risk before the long weekend.

Continued tensions in the Ukraine remained an overhang on a market already repricing itself in preparation for a higher rate environment, a source said.

While there were sizeable Bids-Wanted-in-Competition lists circling on Friday, the selling activity was orderly and trading volumes light, a source said.

Altice USA Inc. subsidiary CSC Holdings LLC’s junk bonds remained in focus with the notes continuing their downward momentum.

Mednax, Inc. 5 3/8% senior notes due February 2030 (Ba3/B+) were also active following the company’s earnings report. However, the notes were unchanged on the week.

Weak secondary

The heavy tone in the secondary space continued on Friday with selling activity driving the market down about ½ point into the close, a source said.

The CDX index was retesting its lows from the previous sessions and there were sizeable Bids-Wanted-in-Competition lists circulating.

Continued tensions in the Ukraine created an additional overhang for a market already repricing itself in preparation for a higher rate environment.

While many do not see a Russian invasion of the Ukraine materializing, geopolitical uncertainty remains high with potential disastrous consequences, a source said.

The tensions contributed to speculation that the Federal Reserve’s March meeting will result in a 50 bps rate hike with some analysts now expecting seven rate hikes in the coming year.

Crossover and low-coupon BB credits remained among the hardest hit in the secondary space; however, no sector seemed safe from the selling pressure.

Credit spreads hit their widest level of the year on Monday at 374 bps with speculation that spreads could widen further to a 4-handle, according to a BofA Global Research report.

However, despite the heavy market conditions some paper remained hard to buy, particularly shorter-duration, higher-yielding paper.

“Anything with a decent coupon has some protection,” a source said.

CSC lower

In a carryover from the previous session, Altice USA Inc. subsidiary CSC Holdings’ junk bonds continued to move lower in active trading.

The 4 5/8% senior notes due 2030 were down another ½ point to close the day at 83½, according to a market source.

There was $14 million in reported volume.

The 4 5/8% notes sank 2 3/8 points the previous session.

CSC Holdings’ 5¾% senior notes due 2030 were down about ½ point to close the day at 89¼, a source said.

There was $9 million in reported volume.

The notes fell 1½ points the previous session.

The cable television provider’s capital structure was under pressure on Thursday following its earnings release.

Mednax active

Mednax’s 5 3/8% senior notes due February 2030 were active on Friday although little changed in high-volume activity.

The 5 3/8% notes were marked at 97½ bid, 97¾ offered which is “the same zip-code” they have traded in, a source said.

There was $10 million in reported volume.

The company recently reported earnings, a source said. While the results had no impact on their trading level, it did spark some adjustments in holdings, a source said.

Fund flows

High-yield ETFs posted their fourth consecutive day of positive cash flows with a $76 million daily inflow on Thursday, according to market sources.

It follows $194 million of inflows on Wednesday, $672 million of inflows on Tuesday and $351 million of inflows on Monday.

Those inflows come on the heels of a six-week period in which the high-yield ETFs sustained aggregate outflows in excess of $11 billion.

Actively managed high-yield funds sustained $22 million of daily outflows on Thursday.

News of Thursday's daily flows trails a Thursday report that the combined funds sustained $3.55 billion of outflows in the week to the Wednesday, Feb. 16 close.

It's the latest in a string of consecutive weekly outflows that now stretches back six weeks, and totals $16.7 billion, or 6.1% of assets under management, the most significant run of outflows since the period ending March 25, 2020, a source said.

Indexes

The KDP High Yield Daily index slid 4 points to close Friday at 62.51 with the yield now 5.22%.

The index shaved off 1 point on Thursday, gained 7 points on Wednesday and 10 points on Tuesday, and fell 41 points on Monday.

The index posted a cumulative loss of 29 points on the week.

The CDX High Yield 30 index fell 15 basis points to close Friday at 105.38.

The index was down 43 bps on Thursday after gaining 15 bps on Wednesday, 44 bps on Tuesday and 2 bps on Monday.

The index posted a cumulative gain of 3 bps on the week.

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