Morning Commentary: Trading, bond issuance muted as Dog Days descend upon junk market

By Paul A. Harris

Portland, Ore., Aug. 24 – Junk felt ¼ to ½ point better in extremely thin volume as the Aug. 24 week got underway, a trader said.

With stock indexes firmly in the green at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.31%, or 26 cents, at $85 per share.

The skies cleared a bit last week for the Covid-battered airlines sector when Southwest Airlines reported that it has the sufficient flexibility and a healthy enough balance sheet to face constricted travel demand that is expected to continue into the autumn.

That flexibility came on display Monday, when the Dallas-based low fare carrier followed through by announcing that it would cancel 35,000 flights in October.

Southwest's stock was up close to 5% on Monday morning, and the high-yield airlines sector appeared to be riding the tailwind, the trader said.

The American Airlines, Inc. 11¾% senior secured notes due July 2025 – the emerging benchmark of distressed airlines paper, the trader noted – was up ½ point at 94¼ bid.

As oil prices rallied in the new week, bonds issued by Occidental Petroleum Corp., earlier in the month, improved, the trader said.

With the barrel price of West Texas Intermediate crude up 0.52%, or 22 cents, at $42.56 per barrel at mid-morning, Occidental Petroleum's 5 7/8% senior notes due September 2025 were 99 7/8 bid, up ½ point.

Among some of the most recent issues, New Fortress Energy Inc.'s 6¾% senior secured notes due September 2025 (B1/B+) were also up half a point at 101¼ bid, the trader said.

The upsized $1 billion issue (from $800 million) priced at par on Aug. 19.

On the heels of generating the biggest August numbers the market has ever seen – $46.2 billion of issuance in 74 tranches – the new issue market has gone quiet, and the active calendar has become extremely thin, with no meaningful pickup expected until after Labor Day, on Sept. 7, sources say.

As the week got underway there was a sole deal parked on the calendar.

IPL Plastics Inc. is scheduled to market a $450 million offering of eight-year senior secured notes (B3) through Tuesday.

The deal is in the market with initial price talk is in the high 6% area to 7%.

The Dog Days of August are seldom completely dormant in the primary market, market sources point out.

It is, for example, a period during which off-the-run issuers, with stories for which investors traditionally have a limited amount of patience, might attempt to raise cash, when there is little else making a play for the market's attention.

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