Morning Commentary: Mallinckrodt bonds dip after spinoff news; junk falls ½ point-plus

By Paul A. Harris

Portland, Ore., Dec. 6 – Continued declines in asset prices took the high-yield index down ½ point-plus on Thursday, according to a trader in New York.

With the Dow Jones industrial average down 2.8% at mid-morning, high-yield ETFs were lower. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 50 cents, or 0.61%, at $82.78 per share.

A flight to safety took the yield of 10-year Treasuries below 2.85% on Thursday morning; it ended November yielding above 3%.

News that specialty pharmaceutical company Mallinckrodt plc announced plans to spin off a new company consisting of its specialty generics business to Mallinckrodt shareholders sent share prices higher but caused the bonds to dip, the trader said.

The Mallinckrodt International Finance SA/Mallinckrodt CB LLC 5 5/8% senior notes due October 2023 were down 2½ points at 83 bid, 84 offered, the source said.

With the oil and gas indexes awash in red ink, high-yield energy names continue to take a beating, sources say.

The barrel price of West Texas Intermediate Crude was down 4.22%, or $2.23, at $50.66 Thursday mid-morning.

The California Resources Corp. 8% senior secured second-lien notes due December 2022, which generally track crude oil prices, were down 2½ points on the morning at 75¼ bid, the New York trader said.

Offerings remained rolled up in the primary market, with no new deals announced, and an active forward calendar sitting empty late in the first week of December.

Continued volatility in the global financial markets will drive all but the boldest junk issuers off into the new year, according to market sources, who are beginning to wonder aloud whether 2018 new issuance may have run its course.

Mixed Tuesday flows

With Wednesday's market closed to commemorate the passing of George Herbert Walker Bush, the 41st president of the United States, the most recent data points regarding the cash flows of the dedicated high-yield bond funds were those generated on Tuesday, a trader said.

On that day flows were mixed but essentially flat.

High-yield ETFs saw $58 million of inflows on Tuesday.

However, actively managed high-yield funds sustained $5 million of outflows on the day.

As the market awaits a report on the weekly cash flows of the dedicated junk funds, the combined funds are tracking $400 million of net outflows in the week to Wednesday's close, the trader said.

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