Morning Commentary: Junk opens better; investors scan for offers as primary goes quiet

By Paul A. Harris

Portland, Ore., April 28 – The junk market opened ¼ point to ½ point better on Tuesday, according to a bond trader.

A new issue market that maintained a high level of activity for the past fortnight, ever since the Federal Reserve Bank's April 9 decision to support bonds in the upper tier of the speculative-grade credit range, went quiet on Tuesday, sources said.

Monday's deals saw overnight price improvements.

The Jeld-Wen, Inc. 6¼% senior secured notes due May 2025 (Ba2/BB+) were wrapped around 101 on Tuesday morning.

The $250 million issue, Monday's only straight-out junk deal, priced at par.

The Monday session saw a continuation of the April trend of investment-grade corporates from sectors exceptionally stressed by the economic fallout of the coronavirus pandemic bringing high-yield style deals.

Kohl's Corp. priced an upsized $600 million (from $500 million) issue of 9½% five-year senior bullet notes (Baa2/BBB-/BBB-) at 99.99 on Monday.

Those bonds were wrapped around 103 on Tuesday morning, according to a trader, who added that demand was heard to be nearing $2 billion on Monday afternoon.

Also in the stressed high-grade credits category, Delta Air Lines, Inc. priced a massively upsized $3.5 billion (from $1.5 billion) issue of 7% secured first-lien bullet notes due 2025 (Baa2/BBB-) at par on Monday.

Those bonds were 101½ bid on Tuesday morning, the trader said.

Looking back to the frenetic week of April 20, in which $12.5 billion of junk came along with the crossovers and fallen angels, bonds sold in a $2.5 billion three-part placement of senior secured notes (Ba2/BB) by the Gap, Inc. were trading at premiums to their new issue prices on Tuesday, after lagging in the secondary market late last week.

The Gap’s 8 3/8% notes due May 2023 were 101 bid, 101½ offered on Tuesday. The 8 5/8% notes due May 2025 and the 8 7/8% notes due May 2027 were par ½ bid, 101 offered.

Monday inflows

The dedicated high-yield bond funds saw $48 million of net inflows on Monday, a market source said.

High-yield ETFs saw $248 million of inflows on the day.

However actively managed high-yield funds sustained $200 million of outflows on Monday, according to the source.

The combined funds are tracking $480 million of net inflows for the week that will conclude with Wednesday's close, the market source added.

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