Morning Commentary: Junk roars off starting line on Monday; recent issues, energy names advance

By Paul A. Harris

Portland, Ore., Oct. 5 – High-yield bonds came ripping out of the gates as the new week got underway, according to a trader in New York.

“Everything is up,” the source said.

High-yield ETFs were buyers heading into mid-morning.

iShares iBoxx $ High Yield Corporate Bd (HYG) was up 74 cents at $83.18 per share.

SPDR Barclays High Yield Bond ETF (JNK) was up 27 cents at $35.60 per share.

Recent issues advance

While the primary market spent the September-October crossover week essentially shuttered by volatility, abetted by a raft of mainstream financial headlines singling out high-yield bonds as an asset class poised for a fall, the most recent big issues to price continue to turn in strong secondary market performances.

These included the Altice/Cablevision Systems Corp. secured and unsecured bonds that priced on Sept. 25 in an overall $4.8 billion three-part deal.

The Cablevision unsecured 10 1/8% 7.25-year notes (B2/B) were 103½ bid, 104½ offered heading into mid-morning.

The unsecured 10 7/8% 10-year notes (B2/B) were 104 bid 105 offered.

Both were 101 bid, 101¾ offered late last week and were 98 bid, 99 offered at the height of the volatility early last week.

Cablevision’s secured 10-year guaranteed notes (Ba1/BB-) were 102 bid, 103 offered on Monday, up from par ½ bid, 101 offered late last week. Those too had traded below par early last week.

Olin Corp.'s new senior notes (Ba1/BB+), which also priced on Sept. 25 in a $1.22 billion two-part deal – the 9¾% eight-year notes and the 10% 10-year notes – were both 103½ bid, 104½ offered on Monday, the trader said.

With conspicuously high coupons, the Altice/Cablevision and Olin bonds came extra cheap, or “juiced,” in order to attract investors during the exceptional volatility of late September, market sources say.

Energy bouncing back

Bonds in the battered energy sector were up 1 point to 2 points heading into mid-morning, the trader said.

The California Resources Corp. 6% notes due November 2024, which have served as a sector benchmark since the magnitude of the crude oil crash started to become apparent in late 2014, were up a couple of points at 61 bid, 61½ offered on Monday.

Those bonds traded as low as 59 bid last week on news that Moody’s Investors Service downgraded the company's unsecured debt to B2 from Ba2.

The downgrade may trigger a springing lien in the credit facility that could see bondholders “primed” in recovery scenarios, the trader said.

Thin calendar

The primary market remained dormant as the Monday session got underway.

There is just one deal on the active calendar, market sources say.

SunOpta Foods Inc. has been marketing a $330 million offering of senior secured second-lien notes due 2022 (B3/B) during the past week.

The deal, via BMO, Jefferies and Rabobank, is set to price this week.

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