Morning Commentary: Junk slips as Treasuries gap higher; funds see Monday outflows

By Paul A. Harris

Portland, Ore., Oct. 3 – Junk bond prices fell ¼ point to ½ point on Tuesday morning as Treasury yields maintained a steep ascent that got underway on Monday, according to a bond trader in New York.

Ten-year government bond yields were 6 basis points to 7 bps higher at 4.76%, the trader noted.

Sellers, particularly the high-yield ETFs, were on the march, as traders plowed through a bundle of bids-wanted-in-competition (BWICs) in the early going, the source added.

The Worldpay (GTCR W-2 Merger Sub LLC) 7½% senior secured notes due January 2031 were 98¾ bid, 99¼ offered, down from 99½ bid, par offered on Monday, in line with the broad market, the trader said.

The $2.175 billion issue priced at par on Sept. 20.

Bonds from the year’s biggest deal to date, the Citrix Systems, Inc. (Cloud Software Group, Inc.) 9% senior secured second-lien notes due September 2029, were ½ point lower on Tuesday morning, trading into an 85¾ bid, the source said.

The $3.84 billion issue priced at 79 on April 4.

The LifePoint Health Inc. 11% senior secured notes due October 2030 (B2/B), the most recent issue to clear the market, was close to a point lower on Tuesday morning at 98¼ bid, 98¾ offered, according to the trader, who noted that the bond was 99¼ bid, 99¾ offered, or slightly better, on Monday.

The $1.1 billion issue priced at par last Friday.

With the Dow Jones industrial average and the S&P 500 stock index both down 0.21% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.19%, or 14 cents, at $72.75.

The dollar-denominated new issue market remained idle on Tuesday morning. The active forward calendar stood empty.

The sole news nugget in the high-yield primary markets of the industrialized Western Hemisphere came from Italy-based Guala Closures SpA, which set initial talk on its €350 million offering of long five-year senior secured floating-rate notes (B1/B+) with a 400 bps to 425 bps spread to Euribor at OID 99.

Books close Wednesday.

Fund flows

The dedicated high-yield bond funds sustained $717 million of net daily cash outflows on Monday, according to market source.

High-yield ETFs saw $712 million of outflows on the day.

The cash flows of the actively managed high-yield funds were generally flat on the day, with those funds sustaining $5 million of outflows on Monday, the source said.

The combined funds are tracking $598 million of net outflows on the week that will conclude with Wednesday’s close, according to the market source.

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