Morning Commentary: Junk sees better bidders early Thursday amid thin liquidity; funds see outflows

By Paul A. Harris

Portland, Ore., Aug. 27 – Better bidders held sway in the high-yield bond market heading into midday on the East Coast of the United States, according to a portfolio manager.

A lot of players are away on vacation, which is causing bigger swings, the manager said, and added that liquidity is ultra-thin.

Junk has tightened somewhat from wides seen earlier in the week, the source said.

The J.P. Morgan Global High Yield index was yielding 7.9% on Thursday morning. It touched 8% on Monday.

Nevertheless, junk yielded 1.48% higher on Thursday than it did on May 29 when the JPMorgan index yielded 6.42%, the source pointed out.

However the recent disruption in high yield pales alongside that which has taken place in equities, the manager maintained.

“Ex-energy, minerals and mining, high yield is still positive year to date,” the manager said.

“The S&P 500 is down 4.5% year to date.”

Recent deals hold in

Some recent issues continue to trade at premiums to new issue prices, the manager said.

KIK Custom Products Inc.’s (Kronos Acquisition Holdings Inc.) 9% senior notes due Aug. 15, 2023 (Caa2/CCC) were 90 bid, 90 7/8 offered on Thursday. The $390 million issue – the most recent to clear the high-yield primary market – priced at 89.57 to yield 11% on Aug. 19.

The Party City Holdings Inc. 6 1/8% senior notes due Aug. 15, 2023 (B3/CCC+) were par ½ bid, 101½ offered on Thursday. The $350 million issue priced at par on Aug. 5.

And the Hill-Rom Holdings Inc. 5¾% senior notes due Sept. 1, 2023 (B1/BB-) were 101¼ bid, 102¼ offered on Thursday, basically at their highs, the investor said. The $425 million issue priced at par on Aug. 18.

Funds see outflows

The dedicated high-yield bond funds saw negative cash flows on Wednesday, the manager said.

High-yield ETFs sustained $200 million of outflows on the session. However ETFs saw a whopping $610 million of inflows on Tuesday, the manager added.

Asset managers saw $290 million of outflows on Wednesday.

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