Morning Commentary: Junk grinds higher amid yield-hunger as cash inflows continue

By Paul A. Harris

Portland, Ore., Aug. 23 – The high-yield market was grinding higher on Tuesday morning, driven by a substantial amount of cash from investors seeking yield, a trader said.

High-yield ETFs were trading higher at mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.37%, or 32 cents, at $86.77 per share. The SPDR Barclays High Yield Bond ETF (JNK), at $36.60 per share, was up 0.4%, or 15 cents.

The bonds of Corrections Corp. of America continued to recover ground they gave up last week when the U.S. Justice Department announced it would phase out its contracts with the Nashville, Tenn.-based private jailer and other private providers of incarceration space.

The Corrections Corp. 4 5/8% notes due May 1, 2023 were 94 bid, 95 offered, the trader said, adding that 500 bonds traded at 94½.

Those bonds were 93 bid, 94 offered on Monday after having traded as low as 90 bid, 91 offered.

The initial sell-off appeared to be overdone, said the trader, who added that share prices initially bore more of the brunt of the Justice Department news than did the bond prices.

Another bond trader said that the buzz in the market is that the Justice Department move was a politically motivated one. Federal prisons tend to be union shops, while private incarcerators tend to be non-union, the trader said.

Outside of the bars, most recent issues continue to trade at premiums to issue prices, sources say.

That's true of a portion of the bonds sold last week by Diamond Resorts International, Inc.

The Diamond Resorts 7¾% senior secured notes due Sept. 1, 2023 (B1/B+) were par ¾ bid, 101 offered, unchanged from yesterday, the trader said. The $500 million tranche priced at par last Wednesday.

Meanwhile the Diamond 10¾% senior unsecured notes due Sept. 1, 2024 (Caa1/CCC+), while lagging their issue price, were up half a point on the day at 97 3/8 bid, the trader said.

The $600 million tranche priced at 98.691 to yield 11%, also on Wednesday.

Inflows on Monday

The cash flows of the dedicated high-yield bond funds were positive on Monday, according to an investor.

High-yield ETFs saw $51 million of inflows on the day.

Actively managed funds was $30 million of inflows on Monday.

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