Morning Commentary: Junk weakens as investors eye rates; MI Windows and Doors active

By Paul A. Harris

Portland, Ore., Jan. 14 – With the 10-year Treasury yield back on the march, and Fed rate hikes looming larger and ever nearer, junk bonds were giving up as much as ¼ point at mid-morning on Friday, according to a New York-based bond trader working from home.

The 10-year was yielding above 1.75% on Friday morning, the trader said, noting that 24 hours previous it was yielding below 1.71%.

Bonds sold Thursday by MI Windows and Doors, LLC, a deal which drew a big crowd, were “super active” on Friday, the trader said.

The MIWD Holdco II LLC and MIWD Finance Corp. 5½% senior notes due February 2030 (B3/B/BB-) were hanging in at par 7/8 at mid-morning.

Last night those bonds were trading above 101, the trader noted, adding that they were off ¼ point with the rest of the market.

The upsized $500 million issue (from $400 million) priced on Thursday at par, 25 basis points through talk (5¾% to 6%) and deep inside of initial guidance in the low 6% area.

The issue was heavily oversubscribed, playing to $4 billion of orders, and allocations were tough, sources said.

The biggest deal to price during Thursday’s active session, the Charter Communications, Inc. (CCO Holdings LLC/CCO Holdings Capital Corp.) 4¾% senior notes due February 2032 (B1/BB+/BB+) were wrapped around par on Friday morning.

The upsized $1.2 billion issue (from $1 billion) came Thursday at par in a deal which market sources characterized as “priced to perfection.”

Meanwhile, in one of the week's most talked-about trades, the dual-tranche deal from Fertitta Entertainment, LLC, formerly known as Golden Nugget, LLC, both tranches were wrapped around par on Friday morning, traders said.

To recap, Fertitta priced $1 billion 4 5/8% senior secured first-lien notes due January 2029 (B1/B+) and $1.25 billion 6¾% senior unsecured notes due January 2030 (Caa2/CCC+), both at par, on Wednesday.

At mid-morning Friday, heading into an extended holiday weekend, with markets closed for the Monday holiday commemorating Martin Luther King Jr., the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.14%, or 12 cents, at $86.05.

Fund flows

The cash flows of the dedicated high-yield bond funds were mixed on Thursday, according to a market source.

Actively managed high-yield funds saw $375 million of inflows on the day.

However high-yield ETFs sustained $251 million of outflows on Thursday, the source said.

News of Thursday's daily flows follows a Thursday afternoon report that the combined funds saw $2.24 billion of net outflows in the week to the Wednesday, Jan. 12 close, according to Refinitiv Lipper.

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