Junk’s improved market tone continues; AK Steel firms; energy names gain as crude oil rises

By Paul Deckelman and Paul A. Harris

New York, Dec. 23 – The high-yield market continued to improve on Wednesday, with traders reporting a generally firm tone, although activity was relatively light, typical of a pre-holiday session.

Wednesday was the last full trading day of the week, with the Securities Industry and Financial Markets Association recommending an early close on Thursday, ahead of Friday’s full market shutdown in observance of Christmas.

The market continued to firm in line with better stocks and oil prices; the latter were up sharply after a U.S. government report disclosed an unexpectedly steep fall in oil stockpiles last week.

That helped credits such as California Resources Corp., Transocean, Inc., Newfield Exploration Co. and Range Resources Corp.

Away from the energy arena, AK Steel Holding Corp. bonds firmed after the U.S. government slapped a stiff 256% tariff on corrosion-resistant steel imports from China, claiming the latter had been sold at unfairly low prices.

Micron Technology Inc.’s bonds were attracting some buyers from among exchange-traded funds – even as the company reported lower results for its 2016 fiscal first quarter.

The primary market remained becalmed, with syndicate sources believing that new issuance has concluded for the calendar year.

Statistical measures of junk market performance were higher across the board for a second consecutive session on Wednesday. They had turned higher on Tuesday after having been mixed on Monday and lower all around on Thursday and again on Friday. Including the two straight higher sessions before that, Wednesday was the fourth positive session in the last seven trading days.

Fund flows negative

Liquidity remained extremely thin on Wednesday, and the session came and went without generating any primary market news, as expected.

The new issue market is expected to remain closed until the new year, a trader said.

The cash flows of the dedicated high-yield funds were negative on Tuesday, the trader said.

The exchange-traded funds saw $180 million of outflows on the day.

Actively managed funds sustained $175 million of outflows on Tuesday.

The Tuesday cash flows of the dedicated bank loan funds were also substantially negative at $340 million of outflows.

Better tone seen

In the secondary sphere, a trader opined that “the tone was better because the ETFs were looking for bonds today, so they kind of lifted things.”

He said that the ETFs “were looking for all kinds of stuff, some of it even downtrodden.”

He said that among the actively traded credits, “everything was up,” on “a little bit more activity than I might have thought.”

He also cited the impact of a “pretty good rally” in world petroleum prices and better commodity prices overall.

“They said that China looked like it had better numbers, so there was a firmer tone by ½ point,” although he called Wednesday’s overall volume levels “thinly traded.”

Oil surge lifts energy credits

Oil prices were higher for a third straight session Wednesday, buoyed by the U.S. Energy Administration’s report that domestic oil stockpiles showed a big, unexpected decline last week, falling by 5.9 million barrels, in contrast to the roughly 600,000-barrel increase that analysts on average were expecting.

The news pushed the benchmark U.S. crude grade, West Texas Intermediate for February delivery, up by a hefty $1.36 per barrel, or 3.8%, settling on the New York Mercantile Exchange at $37.80, its highest level in two weeks.

International oil benchmark Brent crude for February delivery – which had lost ground on Tuesday for a fifth straight day – pulled out of its rut and jumped by $1.25 per barrel, or 3.5%, settling in at $37.36 a barrel on the London ICE Futures Exchange.

With such a strong tailwind, most energy credits were seen better on Wednesday.

A trader saw California Resources’ 8% notes due 2022 up 1 point, at 52¼ bid, with over $15 million having changed hands, putting the Los Angeles-based oil and natural gas exploration and production company’s issue high up on the day’s Most Actives list.

Elsewhere among the energy names, a market source said that global driller Transocean’s 7 1/8% notes due 2021 were up as much as 5 points on the day, ending at 67½ bid.

Newfield Exploration’s 5¾% notes due 2022 rose more than 2 points to 88¼ bid.

Range Resources’ 5% notes due 2023 were likewise up by a deuce at 74½ bid.

Micron gains despite numbers

Away from energy, one of the traders reported that Micron Technology’s numbers “looked like they were horrific, but still the ETFs couldn’t get enough of them.”

He said that “a lot” of the Boise, Idaho-based semiconductor manufacturer’s 5 7/8% notes due 2022 traded – “but not really any lower. The numbers all looked pretty weak.” However, he said that the bonds were a BB credit, with a “decent yield.”

He quoted the bonds up ½ point, to 98¼ bid. Around $7 million of the notes changed hands.

Micron’s 5¼% notes due 2023 also gained ½ point, to 89¾ bid, on “a handful of trades.”

Micron’s 5½% notes due 2025 were off by 1 point at 87½ bid, “but only on a single trade.”

Micron reported late Tuesday that for the 2016 fiscal first quarter ended Dec. 3, the company’s net income fell to $206 million, or 19 cents per diluted share, from $471 million, or 42 cents per diluted share, for the year-earlier fourth quarter.

Revenues were $3.35 billion, down 7% sequentially from the fourth quarter of fiscal 2015 and 27% below the first quarter of fiscal 2015.

“The numbers and the headlines looked pretty ugly, ”the trader said, “but when [the ETFs] want them, they get ’em.”

Frontier firms up

A market source noted that Frontier Communications Corp.’s notes were probably the busiest bonds in Junkbondland on Wednesday.

The Stamford, Conn.-based wireline telecommunications company’s 11% notes due 2025 gained 1¼ points, ending at 98 bid, with market-leading volume of over $17 million.

Its 10½% notes due 2022 were ¾ point better at 98½ bid, on volume of over $8 million.

AK up on tariff news

The news that the U.S. Commerce Department will impose a 256% tariff on imports of non-corroding steel products from China gave AK Steel’s paper a boost.

More than $7 million of its 7 5/8% notes due 2020 traded, jumping to around 42 bid – up a point on a round-lot basis and up almost 3 points from Tuesday’s close.

The federal agency said the Chinese were selling their steel product at unfairly low levels, necessitating the tariff.

The agency also slapped smaller tariffs on similar steel products from India, South Korea and Italy.

Indicators again better

Statistical measures of junk market performance were higher across the board for a second consecutive session on Wednesday. They had turned higher on Tuesday after having been mixed on Monday and lower all around on Thursday and again on Friday. Including the two straight higher sessions before that, Wednesday was the fourth positive session in the last seven trading days.

The KDP High Yield Daily index shot up by 31 basis points on Wednesday to close at 63.52, its second straight gain. On Tuesday, it had risen by 24 bps, its first gain after 3 straight losses.

Its yield dropped by 13 bps to finish at 7.39%, its second successive narrowing after three straight widenings. On Tuesday, the yield came in by 12 bps.

The Markit Series 25 CDX North American High Yield index soared by just under ¾ point on Wednesday, going out at 100 27/32 bid, 100 7/8 offered, its third straight upturn after two losses. It had gained 21/32 point on Tuesday.

The Merrill Lynch North American Master II High Yield index recorded its second consecutive advance on Wednesday, following three losses in a row. It improved by 0.376%, on top of Tuesday’s 0.201% rise.

That gain cut its year-to-date loss to 5.098% from 5.454% on Tuesday.

© 2015 Prospect News.
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