Morning Commentary: Upsized, oversubscribed Seadrill on deck; ETFs see big inflows

By Paul A. Harris

Portland, Ore., July 13 – Economic data that continues to suggest cooling inflation – with an attendant hope, on the part of investors, that the Fed will extend its reprieve from rate hikes – pushed bonds and stocks higher on Thursday morning, sources said.

The broad high-yield bond market was up 1/8 of a point to as much as ¼ of a point, said a bond trader in New York, who added that the market “feels like it wants to go higher.”

Thursday’s improvement follows a Wednesday rally that propelled junk 7/8 of a point higher, the trader said.

With the S&P 500 stock index up 0.56% at mid-morning on Thursday, the iShares iBoxx $ High Yield Corporate Bd (HYG) shares saw a 0.47% improvement to $75.55, 35 cents better.

Wednesday’s release of a tamer-than-expected Consumer Price Index report kindled the current rally, with afterburners triggered by Thursday’s benign Producer Price Index numbers, the trader said.

The thrust pushed the Windsor Holdings III, LLC (Univar) 8½% senior secured notes due June 2030 up 2 points to 2½ points on the week, the trader said.

“They’re now trading around par after getting kicked in the teeth,” the source remarked.

The $800 million issue, backing Apollo’s buyout of Univar Solutions Inc., priced at par in mid-June.

In the new issue market, Seadrill Finance Ltd. talked $500 million of seven-year senior secured second-lien notes (B2/BB) in the 8½% area, tight to initial guidance in the 8¾% area.

The deal, which upsized from $450 million, is playing to a robust $2.7 billion of demand, with 10 accounts expected to take down 50% of the issue, sellside sources say.

Pricing is expected later Thursday.

When those bonds print, they will become the first dollar-denominated new issue of July.

The lack of a calendar, amid economic data that should support one, surprises the New York bond trader.

People have cash to put to work, and they are lifting bonds in the secondary market because there is no calendar, the trader said.

There is a deal pipeline, the source asserted, expressing some astonishment that none of it (save for Seadrill) materialized during the present week’s rally.

Fund flows

High-yield ETFS saw very large daily cash inflows of $1.585 billion on Wednesday, according to a market source.

Daily inflows to the HYG ETF amounted to approximately 10% of assets under management, the source noted.

Actively managed high-yield funds saw $84 million of inflows on Wednesday.

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