Morning Commentary: Junk opens higher; Chesapeake bonds advance on agreement with Williams

By Paul A. Harris

Portland, Ore., Sept. 8 – The high-yield market was “ripping higher” as trading got underway on Tuesday following the extended Labor Day holiday weekend in the United States, according to a trader on the East Coast.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 34 cents at $86.30 per share heading into the New York midday.

The SPDR Barclays High Yield Bond ETF (JNK) was 16 cent better at $36.97 per share.

The CDX HY 24 index was up a solid half point, the trader said.

Trading volumes were quiet to start, said the trader. But things will obviously pick up during the week, first in the secondary, but the primary market will probably pick up too, the source added.

There was no primary market news coming out of the gates on Tuesday.

The most recent new issue to clear the market came last Friday from Oslo-based financial information services provider Lindorff Group AB, which priced a €230 million two-part secured add-on deal (B2/BB-).

KIK Custom Products Inc. priced the most recent dollar-denominated deal on Aug. 19, a $390 million issue of 9% senior notes due Aug. 15, 2023 (Caa2/CCC).

Chesapeake, Williams eyed

News of strategic agreements reached by Chesapeake Energy Corp. and Williams Cos. sent Chesapeake bonds higher on Tuesday, the trader said.

The Chesapeake Energy 6 5/8% notes due Aug. 15, 2020 were trading in a context of 83 on Tuesday; they were 81˝ bid, 82 offered last week, the trader said, adding that the entire Chesapeake structure seemed up 1 or 2 points, although not every issue had traded.

In a Tuesday press release Williams announced an expansion of gas gathering services for Chesapeake Energy in growing dry gas production areas of the Utica Shale in eastern Ohio and a consolidation of contracts in the Haynesville Shale in northwestern Louisiana to optimize production opportunities, streamline fee structures and restructure commitments to incentivize long-term development of the fields.

Investors seem to be interpreting the agreement as one that will save cash for Chesapeake by reducing costs, the trader remarked.

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