Morning Commentary: Junk slips following blowout payrolls report; Thursday deals mixed

By Paul A. Harris

Portland, Ore., Aug. 5 – Investors hoping that a “recession” narrative might displace the “inflation” narrative in Fed interest rate calculations, perhaps prompting the Federal Open Market Committee to halt or slow expected future rate increases, were dealt a blow on Friday morning, market sources say.

A report from the U.S. Department of Labor was anything but recessionary, with non-farm payrolls growing in July at twice the rate that economists expected, while the unemployment rate fell and average hourly earnings increased.

On the heels of that report the yield of 10-year Treasury bonds surged over 10 basis points, according to a high-yield bond trader in New York.

The high-yield bond market, which opened unchanged on Friday morning, proceeded to follow equities lower, according to the trader, who marked junk lower by 1/8 of a point to ¼ of a point at mid-morning.

With the S&P 500 stock index down 0.53% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.7%, or 55 cents, at $77.89.

Deals priced in a Thursday burst of high-yield bond issuance were turning in mixed performances on Friday morning.

The new CCO Holdings, LLC/CCO Holdings Capital Corp. (Charter Communications, Inc.) 6 3/8% senior notes due 2029 (B1/BB-) were trading below new issue price at 99¼ bid, 99¾ offered, according to the trader, who noted that the bonds, which priced at par, traded as high as par ¼ on Thursday.

The upsized $1.5 billion deal (from $1 billion) was heard to have been well oversubscribed – an assertion somewhat borne out by the pricing, as the deal was announced with guidance in the 6 5/8% area and officially talked in the 6½% area, before ultimately pricing at 6 3/8%.

Meanwhile, the smaller of Thursday's pair of drive-by deals, the Advisor Group Holdings, Inc. 8 5/8% senior secured notes due 2027 (B2/B-/B), was unchanged on Friday morning at 101¾ bid, 102¼ offered, a hefty premium to its par issue price.

The deal came upsized to $500 million from $475 million, pricing through the 8¾% to 9% price talk. Early conversations took place in the low-to-mid 9% context.

That $2 billion Thursday burst of issuance, representing the first dollar-denominated new issue business in over a week, might have happened in a vacuum, sources say.

Charter and Advisor Group left in their wake an empty active forward calendar.

And there were no new issue announcements on Friday as investors digested the non-farm payrolls surprise and its interest rate implications, thinning the already low liquidity of a late summer Friday in the high-yield bond market, sources said.

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