Morning Commentary: Energy names lower despite oil price improvement; funds see outflows

By Paul A. Harris

Portland, Ore., Dec. 19 – A Wednesday rebound in energy prices, effecting most indexes, was failing to provide a tailwind for high-yield energy names, a New York-based trader said.

At mid-morning the barrel price of West Texas Intermediate (WTI) crude for January 2019 delivery had rallied 3.57%, or $1.65, to $47.89.

However, the Murphy Oil Corp. 6 7/8% senior notes due August 2024 were off 1½ points on the morning at 99 bid.

Even the bellwether California Resources Corp. 8% senior secured second-lien notes due December 2022 were uncharacteristically moving counter to oil prices, down about a point on the morning at 69 bid.

People might be sensing that this is just a head-fake, the trader remarked about the modest Wednesday rally in crude prices, following an almost undisrupted nosedive in the price that got underway in early October, when WTI was trading above $76 per barrel.

The one energy index in the red on Wednesday was natural gas, with 1 million BTUs for January 2019 delivery down 6.25%, or 24 cents, to $3.60.

The Ferrellgas LP/Ferrellgas Finance Corp. 6¾% senior notes due June 2023 traded 2¾ points lower at 82 early Wednesday.

Away from energy, bonds of Fresh Market, Inc., the Pomegranate Merger Sub, Inc. 9¾% first-priority senior secured notes due May 2023 were up 1 point to 2 points following an earnings call, the trader said.

However, Micron Technology, Inc.’s bonds were lower following weak guidance.

The Micron Technology 5½% senior notes due February 2025 traded at 97¼, down 2½ points.

Although the Dow Jones industrial average was 170 points higher at mid-morning, high-yield ETFs were shrugging off the better mood in equities. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 8 cents, or 0.09%, at $82 per share.

Pre-holiday liquidity in the junk market continued to thin, with sources heading to the exits to take part in year-end celebrations with families and friends. Some e-mail messages to contacts bounced back with “out-of-office” responses.

New issue activity has concluded for the year, sources say.

Tuesday outflows

The cash flows of the high-yield bond funds were negative on Tuesday, a trader said.

High-yield ETFs sustained $249 million of outflows on the day.

Actively managed high-yield funds saw $100 million of outflows on Tuesday, the source added.

Entering the final day of the present weekly fund flow reporting period, the combined funds were tracking about $367 million of outflows since last Thursday's open, the trader said.

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