Morning Commentary: Market slips in thin trading; Hanesbrands bonds hold modest premium

By Paul A. Harris

Portland, Ore., May 1 – Sources saw some selling as May got underway in the junk bond market.

High yield was trading off ¼ point to ½ point on Friday morning, against a backdrop of weaker equities, with the S&P 500 index down 1.8% at mid-morning, at which point the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) was off 0.86%, or 69 cents, at $79.38 per share.

The Arconic Corp. 6% first-lien secured notes due May 2025 (Ba1/BB+/BBB-) were down half a point on the morning at par ½ bid, according to a New York-based bond trader.

The upsized $700 million split-rated issue (from $600 million) priced Wednesday at par.

The most active Friday morning trading was in the new Hanesbrands Inc. 5 3/8% senior notes due 2025 (Ba3/BB), which were par 1/8 bid, par ¼ offered, the trader said, noting the “super tight” bid ask spread.

The upsized $700 million issue (from $500 million) priced at par on Thursday.

Bonds priced Thursday in the gargantuan Boeing Co. $25 billion seven-tranche investment-grade deal (Baa2/BBB-/BBB) had a very limited following among high-yield investors, sources said.

Those bonds had tightened somewhat ahead of the Friday open in New York but then slid and were seen as much as 5 basis points to 12 bps wider following the open.

In an otherwise quiet primary market Del Monte Foods Inc. is attempting to refinance its capital structure with the help of a $500 million placement of five-year senior secured notes (Caa2/CCC+), expected to price on Friday.

The deal comes with initial coupon talk of 12%, and 3 points to 5 points of original issue discount, sources say.

Thursday inflows

The dedicated high-yield bond funds saw $810 million of net daily cash inflows on Thursday, according to a market source.

High-yield ETFs saw $760 million of inflows on the day.

Actively managed high-yield funds saw $50 million of inflows on Thursday, the source said.

News of Thursday's inflows trails a Thursday afternoon report that the combined funds saw $743 million of net inflows in the week to the Wednesday, April 29, close, according to Lipper US Fund Flows.

That extended the current streak of positive weekly flows to the dedicated junk funds to five weeks, according to the market source.

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