Morning Commentary: Junk gaps higher on CPI; funds track $1.23 billion weekly inflows

By Paul A. Harris

Portland, Ore., Nov. 10 – Investors betting that a more benign than expected October Consumer Price Index report will moderate the Fed's inflation fighting tactics lifted the high-yield bond market by 1 point to 2 points on Thursday morning, according to a bond trader in New York.

The report took year-over-year inflation down to 7.7%, a big reduction from the 8.2% pace that inflation was running in September.

In the wake of that report, Fed swaps were downgrading the chance of another 75 basis point hike in the Fed Funds rate in December, according to a market source.

With the S&P 500 stock index up a whopping 4% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price jumped 2.7%, or $1.94, to $73.89.

A contagion of exuberance spread quickly across the Atlantic.

The closely followed iTraxx Crossover index, comprised of the 75 most liquid euro-denominated sub-investment-grade entities, at 489 basis points bid post-CPI, was 33 bps tighter on the day, according to a senior debt capital markets banker in London.

Factoring that the index was 5 bps to 6 bps wider ahead of the CPI report, the net tightening was around 40 bps, said the banker, characterizing it as a really big move.

Recent high-yield issues were generally going along for the ride on Thursday morning, the New York trader said.

The Ball Corp. 6 7/8% senior notes due March 2028 (Ba1/BB+) were up 1½ points at mid-morning, wrapped around 101, the trader said.

The $750 million issue of long five-year paper priced at par to yield 6.879% in a Wednesday drive-by heard to have played to $3 billion of demand, according to market sources.

The Spirit Loyalty Cayman Ltd./Spirit IP Cayman Ltd. 8% senior secured first-lien mirror notes due Sept. 20, 2025 (Ba2//BB+) were also up 1½ points, the trader said.

The upsized $600 million issue (from $500 million) priced at 98.5 to yield 8.599% in a quick-to-market Wednesday transaction.

The Neptune BidCo US Inc./Nielsen Holdings plc 9.29% senior secured notes due April 2029 (B2/B/BB) were also higher on the morning, wrapped around 94, the trader said.

The $1.96 billion issue, backing the buyout of Nielsen by Evergreen Coast Capital Corp. and Brookfield Business Partners LP, priced Tuesday at 92.294 to yield 11%.

The new issue market remained quiet heading into the extended Veterans Day holiday weekend, which gets underway following Thursday’s close.

The active forward calendar features just one deal.

Pegasus Merger Co./Tenneco Inc. is attempting to place $1 billion of six-year senior secured notes (B2/B-), in the market with early guidance specifying a coupon of 8% at a discount to yield 12%.

The deal, backing the buyout of Tenneco by Apollo, was in the market on a timeline that had pricing ahead of the weekend.

However, the week has produced no hard news on the proposed placement.

Notwithstanding the fortunes of the Tenneco deal, the market saw $6.01 billion of issuance on the week. That's the most weekly issuance since the $6.55 billion that priced in the week that began on May 30.

And issuance volume appears to be trending higher, sources say.

There is a $100 billion pipeline of high-yield bond deals that could begin to appear should the market stabilize, according to a trader.

Fund flows

High-yield ETFs saw $186 million of daily cash inflows on Wednesday, according to a market source.

Actively managed high-yield funds were negative on the day, sustaining $108 million of outflows on Wednesday, the source said.

As the market awaits a report on the weekly cash flows of various asset classes from fund-tracker Refinitiv Lipper, due later on Thursday, the combined high-yield funds are tracking $1.23 billion of net inflows for the week to Wednesday's close, according to the market source, who added that should an inflow of such magnitude materialize it would cap a three-week run of inflows that would be the largest for such an interval since June 2020.

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