Morning Commentary: Junk follows stocks lower; high-yield funds see Friday inflows

By Paul A. Harris

Portland, Ore., July 11 – The high-yield bond market followed equities lower as the July 11 week got underway, according to a trader who marked the junk index 5/8 point lower at midmorning.

With the Dow Jones industrial average was off 0.59% the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.47%, or 35 cents, at $75.54.

News of the bust up of Elon Musk's gambit to acquire Twitter, Inc. continued to erode Twitter share prices in the early going on Monday.

However activity in the bonds was light as the new week got underway, the trader said, adding that it suggested that fixed-income investors saw the deal's demise coming.

The Twitter 3 7/8% senior notes due December 2027 traded a couple times at 92 on Monday morning, unchanged, the source said.

Meanwhile the trader spotted the Twitter 5% senior notes due March 2030 at 93½ bid, also unchanged.

Late last week Musk, the Tesla billionaire, announced he would terminate his $44 billion offer to buy the San Francisco-based social media company, asserting that it failed to comply with its obligations under the merger agreement.

Meanwhile Twitter's board said it plans to take Musk to court in order to enforce the merger.

Away from that situation the most recent dollar-denominated deal to clear the market (the sole dollar-denominated issue to price since the Independence Day holiday weekend) continued to trade at a premium to its new issue price.

The Garden SpinCo Corp. (Neogen Corp.) 8 5/8% senior notes due July 2030 (B2/BB) were unchanged at 102 bid, 102½ offered on Monday morning, the trader said.

The $350 million issue priced last Wednesday at par.

There was no news in the new issue market on Monday morning.

Pegasus Merger Co., an affiliate of Apollo Global Management, Inc., has been pre-marketing $2 billion of secured notes and $1 billion of unsecured notes backing the leveraged buyout of Tenneco Inc., by Apollo, sources say.

The notes, along with $2.4 billion of term loan debt, are expected to come to the primary market before the end of July, and could come as early as the present week, they add.

$353 million Friday inflows

The dedicated high-yield bond funds had $353 million of net daily inflows on Friday, according to a market source.

High-yield ETFs had $323 million of inflows on the day.

Actively managed high-yield funds saw $30 million of inflows on Friday, the source said.

However year-to-date cash flows of the combined high-yield bond funds remain deep in the red at negative-$43.4 billion, according to the market source.

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