Morning Commentary: Late summer liquidity continues to thin; junk funds see mixed Thursday flows

By Paul A. Harris

Portland, Ore., Aug. 25 – Liquidity in the high-yield bond market continued to thin on Friday, a trader said.

The new issue market was shuttered and is expected to remain so until after the Labor Day holiday weekend in the United States, which begins one week hence.

High-yield ETFs were higher on the morning.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was up a dime, or 0.11%, at $88.16 per share.

The ETFs saw substantial daily inflows of $279 million on Thursday, the trader said.

Investors continue to appear to have cash to put to work, as evinced by a preponderance of offers wanted in competition (OWIC) lists from the ETFs, the source added.

Actively managed high-yield funds sustained $210 million of outflows on Thursday.

Amid the thin late summer liquidity, investors seem reticent to undertake trades and appear to be following paths of least resistance, the trader remarked.

Names that have traded well tend to be marked higher.

Bonds of Valeant Pharmaceuticals International Inc. go a little tighter each day, notwithstanding the fact that half the people who trade in the health care space are on mandatory two-week vacations as the summer winds down, the source said.

Among recent issues, the Restaurant Brands International Inc. 5% second-lien senior secured notes due 2025 (B3/B-) were 102 bid on Friday morning.

Those bonds were spotted at 101½ bid on Thursday.

The $1.3 billion issue priced at par on Aug. 8.

Conversely, names that have traded poorly tend to be marked a little lower each day.

The Murray Energy Corp. 11¼% senior secured second-lien notes due April 15, 2021 were 59 bid, 60 offered on Friday, although none had traded.

Another source said that they traded at 60 7/8 on Thursday.

Earlier in the week the bonds underwent a steep fall, from 67 down to the very low 60s, when the U.S. Department of Energy declined to intervene in order to keep the coal fired power plants of bankrupt FirstEnergy Solutions operating.

FirstEnergy is a key customer of Murray Energy.

Elsewhere the ClubCorp Holdings Inc. 8½% senior notes due Sept. 15, 2025 (Caa1/CCC+) were 98 bid, 99 offered on Friday.

The downsized $425 million issue (from $475 million) priced at par on Aug. 15.

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